Question 1

In the conventional view, outward shifts of the Phillips Curve in the 1970s and early 1980s were caused by:

Accepted Answer

A)   adverse shocks to aggregate supply.
B)   adverse shocks to aggregate demand.
C)   an increase in the misery index.
D)   the Vietnam War.E) All of the above
F) None of the above

Question 2

-Refer to the above diagram for a specific economy. An increase in aggregate demand will:

Accepted Answer

A)   shift this curve to the right.
B)   shift this curve to the left.
C)   move this economy southeast along the curve.
D)   move this economy northwest along the curve.E) B) and C)
F) A) and B)

Question 3

When the economy is experiencing cost-push inflation, an increase in aggregate demand will likely result in less inflation. .

Accepted Answer

A) True 
 B)False

Question 4

A criticism of cuts in marginal tax rates is that they fail to:

Accepted Answer

A)   decrease disinflation in the economy.
B)   decrease demand-pull inflation in the economy.
C)   increase aggregate supply more rapidly than aggregate demand.
D)   increase aggregate demand more rapidly than aggregate supply.E) All of the above
F) A) and B)

Question 5

A shift in the Phillips Curve to the left will improve the "inflation-unemployment" choices available to society.

Accepted Answer

A) True 
 B)False

Question 6

In the short run, demand-pull inflation increases:

Accepted Answer

A)   real wages, but in the long run only nominal wages.
B)   nominal wages, but in the long run only real wages.
C)   real output and the price level, but in the long-run only real output.
D)   real output and the price level, but in the long-run only the price level.E) B) and D)
F) A) and B)

Question 7

Long-run equilibrium occurs where:

Accepted Answer

A)   real output is greater than potential output.
B)   the vertical long-run aggregate supply curve, and short-run aggregate supply curve intersect.
C)   the aggregate demand curve, and short-run aggregate supply curve intersect
D)   the aggregate demand curve, vertical long-run aggregate supply curve, and short-run aggregate supply curve all intersect.E) B) and D)
F) B) and C)

Question 8

1 and AS1 and then is hit with both demand-pull and cost-push inflation. If this occurs, then, in the short run: A)  AD1 will shift to AD2, AS2 will shift to AS3, the price level will be at P2, and output will be at Q2. B)  AS1 will shift to AS3, AD2 will shift to AD1, the price level will be at P3, and output will be at Q3. C)  AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P2, and output will be at Q2. D)  AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P3, and output will be at Q1." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above graph. Assume that the economy is at equilibrium at AD1 and AS1 and then is hit with both demand-pull and cost-push inflation. If this occurs, then, in the short run:

Accepted Answer

A)   AD1 will shift to AD2, AS2 will shift to AS3, the price level will be at P2, and output will be at Q2.
B)   AS1 will shift to AS3, AD2 will shift to AD1, the price level will be at P3, and output will be at Q3.
C)   AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P2, and output will be at Q2.
D)   AD1 will shift to AD2, AS1 will shift to AS2, the price level will be at P3, and output will be at Q1.E) A) and B)
F) A) and C)

Question 9

The short-run aggregate supply curve is upward-sloping because:

Accepted Answer

A)   higher prices discourage the producers to expand output.
B)   higher price levels create incentives to expand output when resource prices remain constant.
C)   lower prices encourage the producers to expand output.
D)   higher price levels create an expectation among producers of still higher price levels.E) A) and C)
F) B) and D)

Question 10

Critics of supply-side economics:

Accepted Answer

A)   argue that a tax cut will increase aggregate demand by more than it increases real output.
B)   contend that the relationship between tax rates and economic incentives is small and of uncertain direction.
C)   believe that a decline in tax rates will give rise to budget deficits.
D)   make all of the above points.E) A) and D)
F) B) and C)

Question 11

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 12

The equilibrium price level and level of real output occur where:

Accepted Answer

A)   real output is at its highest possible level.
B)   exports equal imports.
C)   price is at its lowest level.
D)   the aggregate demand and supply curves intersect.E) A) and B)
F) All of the above

Question 13

Which factor contributed to the termination of stagflation in the 1980s?

Accepted Answer

A)   less foreign competition
B)   more government regulation
C)   a reduction in oil prices
D)   a rise in per-unit production costsE) None of the above
F) C) and D)

Question 14

The long-run aggregate supply curve is vertical:

Accepted Answer

A)   because the rate of inflation is steady in the long run.
B)   Input prices eventually rise in response to changes in output prices.
C)   because product prices always increase at a faster rate than resource prices.
D)   only when the money supply increases at the same rate as real GDP.E) A) and D)
F) C) and D)

Question 15

In the long-run firms respond to the lower profits by reducing their nominal wage increases.

Accepted Answer

A) True 
 B)False

Question 16

-Refer to the above diagram. If tax rates are between b and d, then supply-side economists are of the opinion that a(n) :

Accepted Answer

A)   increase in tax revenues will increase tax rates.
B)   decrease in tax rates will increase tax revenues.
C)   increase in tax rates will increase tax revenues.
D)   decrease in tax revenues will decrease tax rates.E) A) and B)
F) B) and D)

Question 17

Other things equal, an increase in the price level will:

Accepted Answer

A)   shift the short run aggregate supply curve to the right.
B)   shift the aggregate demand curve to the right.
C)   cause a movement up along a short-run aggregate supply curve.
D)   cause a movement down a short run aggregate supply curve.E) C) and D)
F) A) and D)

Question 18

An upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

Accepted Answer

A) True 
 B)False

Question 19

If government fiscal policy is used to restrain cost-push inflation, we can expect:

Accepted Answer

A)   the unemployment rate to rise.
B)   the unemployment rate to fall.
C)   the aggregate demand curve to shift rightward.
D)   tax-rate declines and increases in government spending.E) A) and C)
F) None of the above

Question 20

1 shifts to AD2, and wages and prices are flexible, then the long-run aggregate supply curve will be:  A)  AS2. B)  AS1. C)  a vertical line at Qf. D)  a vertical line at Q1." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above graph. Assume that the economy is initially at equilibrium at point A. If there is a recession in this economy such that AD1 shifts to AD2, and wages and prices are flexible, then the long-run aggregate supply curve will be:

Accepted Answer

A)   AS2.
B)   AS1.
C)   a vertical line at Qf.
D)   a vertical line at Q1.E) C) and D)
F) A) and B)

Exam 15: Long-Run Macroeconomic Adjustments

If government fiscal policy is used to restrain cost-push inflation, we can expect:

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Long-run equilibrium occurs where:

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-Refer to the above diagram for a specific economy. An increase in aggregate demand will:

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In the long-run firms respond to the lower profits by reducing their nominal wage increases.

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Critics of supply-side economics:

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The short-run aggregate supply curve is upward-sloping because:

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-Refer to the above diagram. If tax rates are between b and d, then supply-side economists are of the opinion that a(n) :

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Which factor contributed to the termination of stagflation in the 1980s?

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In the short run, demand-pull inflation increases:

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An upward shift of the Phillips Curve is consistent with the occurrence of stagflation.

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Other things equal, an increase in the price level will:

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The long-run aggregate supply curve is vertical.

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In the conventional view, outward shifts of the Phillips Curve in the 1970s and early 1980s were caused by:

Correct AnswerverifiedShow Answer

The equilibrium price level and level of real output occur where:

Correct AnswerverifiedShow Answer

-Refer to the above graph. Assume that the economy is at equilibrium at AD1 and AS1 and then is hit with both demand-pull and cost-push inflation. If this occurs, then, in the short run:

Correct AnswerverifiedShow Answer

-Refer to the above graph. Assume that the economy is initially at equilibrium at point A. If there is a recession in this economy such that AD1 shifts to AD2, and wages and prices are flexible, then the long-run aggregate supply curve will be:

Correct AnswerverifiedShow Answer

A shift in the Phillips Curve to the left will improve the "inflation-unemployment" choices available to society.

Correct AnswerverifiedShow Answer

When the economy is experiencing cost-push inflation, an increase in aggregate demand will likely result in less inflation. .

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical:

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A criticism of cuts in marginal tax rates is that they fail to:

Correct AnswerverifiedShow Answer

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-Refer to the above graph. Assume that the economy is at equilibrium at AD₁ and AS₁ and then is hit with both demand-pull and cost-push inflation. If this occurs, then, in the short run:

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-Refer to the above graph. Assume that the economy is initially at equilibrium at point A. If there is a recession in this economy such that AD₁ shifts to AD₂, and wages and prices are flexible, then the long-run aggregate supply curve will be:

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