Question 1

What will occur in the short run if there is cost-push inflation and if the government adopts a hands-off approach to it?

Accepted Answer

A)   an increase in long-run aggregate supply
B)   a decrease in long-run aggregate supply
C)   low unemployment and a loss of real output
D)   high unemployment and a loss of real outputE) A) and B)
F) All of the above

Question 2

The characteristics of the long-run Phillips Curve suggest that the economy is generally stable at its natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 3

An adverse aggregate supply shock:

Accepted Answer

A)   automatically shifts the aggregate demand curve rightward.
B)   causes the Phillips Curve to shift leftward and downward.
C)   can be caused by a boost in the rate of growth of productivity.
D)   can cause stagflation.E) A) and B)
F) A) and C)

Question 4

-Refer to the above diagram for a specific economy.The curve on this graph is known as a:

Accepted Answer

A)   Laffer Curve.
B)   Phillips Curve.
C)   labor demand curve.
D)   production possibilities curve.E) C) and D)
F) A) and B)

Question 5

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 6

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) B) and C)
F) B) and D)

Question 7

The short run in macroeconomics is a period in which nominal wages:

Accepted Answer

A)   remain fixed as the price level stays constant.
B)   change as the price level stays constant.
C)   remain fixed as the price level changes.
D)   change as the price level changes.E) B) and C)
F) A) and D)

Question 8

The Phillips Curve reveals that with a constant short-run aggregate supply curve,the larger the increase in aggregate demand:

Accepted Answer

A)   the lesser the increase in real output and the higher the rate of inflation.
B)   the greater the increase in real output and the higher the rate of inflation.
C)   the greater the increase in real output and the lower the rate of inflation.
D)   the lesser the increase in real output and the lower the rate of inflation.E) A) and B)
F) C) and D)

Question 9

Economic growth driven by supply factors causes:

Accepted Answer

A)   continuous leftward shifts of aggregate supply.
B)   a rightward shift of an economy's long-run aggregate supply.
C)   one time shift in aggregate supply.
D)   no shift in aggregate supply.E) A) and B)
F) C) and D)

Question 10

In the long run,cost-push inflation results in a simultaneous decrease in the price level and real output.

Accepted Answer

A) True 
 B)False

Question 11

Demand-pull inflation and cost-push inflation are identical concepts because both entail rising nominal wages and rising prices.

Accepted Answer

A) True 
 B)False

Question 12

-Refer to the above diagram for a specific economy.Which of the following best describes a decision by policymakers which moves this economy from point b to point a?

Accepted Answer

A)   Policymakers have instituted an expansionary money policy and/or a budgetary deficit,thereby accepting more unemployment to reduce the rate of inflation.
B)   Policymakers have instituted a tight money policy and/or a budgetary surplus,thereby accepting a higher rate of inflation to reduce unemployment.
C)   Policymakers have instituted an expansionary money and/or a budgetary deficit,thereby accepting a higher rate of inflation to reduce unemployment.
D)   Policymakers have instituted a tight money policy and/or a budgetary surplus,thereby accepting more unemployment to reduce the rate of inflation.E) A) and C)
F) A) and B)

Question 13

A basic criticism of supply-side economics is that:

Accepted Answer

A)   empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates.
B)   lower taxes will increase aggregate supply much more than they will increase aggregate demand.
C)   lower taxes will increase aggregate demand much more than they will increase aggregate supply.
D)   higher taxes will reduce incentives to work,invest,and innovate.E) B) and C)
F) A) and D)

Question 14

Supply-side economists say that:

Accepted Answer

A)   lower tax rates on businesses will shift the aggregate supply curve rightward.
B)   demand creates its own supply.
C)   tariffs should be imposed on imports to shift the Canadian aggregate supply curve rightward.
D)   the federal budget deficit should be eliminated through increases in taxes.E) A) and D)
F) All of the above

Question 15

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) A) and B)
F) A) and C)

Question 16

If prices and wages are flexible,a recession arising from a decrease in aggregate demand will:

Accepted Answer

A)   decrease the price level.
B)   increase the price level.
C)   increase the interest rate.
D)   increase net exports.E) B) and D)
F) B) and C)

Question 17

Economists often recommend active monetary policy,and perhaps fiscal policy,to counteract the recessions.

Accepted Answer

A) True 
 B)False

Question 18

If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

Accepted Answer

A)   a deflationary spiral is likely to occur.
B)   an inflationary spiral is likely to occur.
C)   stagflation is likely to occur.
D)   the Phillips Curve is likely to shift inward.E) None of the above
F) A) and C)

Question 19

The Laffer Curve shows the real world tradeoff between the price level and tax rates.

Accepted Answer

A) True 
 B)False

Question 20

The basic problem portrayed by the Phillips Curve is:

Accepted Answer

A)   that a level of aggregate demand sufficiently high to result in full employment may also cause inflation.
B)   that changes in the composition of total labor demand tend to be deflationary.
C)   that unemployment rises at the same time the general price level is rising.
D)   the possibility that automation will increase the level of noncyclical unemployment.E) None of the above
F) All of the above

Exam 16: Long-Run Macroeconomic Adjustments

If prices and wages are flexible,a recession arising from a decrease in aggregate demand will:

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Long-run equilibrium occurs where:

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Economic growth driven by supply factors causes:

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The Phillips Curve reveals that with a constant short-run aggregate supply curve,the larger the increase in aggregate demand:

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The basic problem portrayed by the Phillips Curve is:

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The short run in macroeconomics is a period in which nominal wages:

Correct AnswerverifiedShow Answer

Economists often recommend active monetary policy,and perhaps fiscal policy,to counteract the recessions.

Correct AnswerverifiedShow Answer

The Laffer Curve shows the real world tradeoff between the price level and tax rates.

Correct AnswerverifiedShow Answer

A basic criticism of supply-side economics is that:

Correct AnswerverifiedShow Answer

An adverse aggregate supply shock:

Correct AnswerverifiedShow Answer

-Refer to the above diagram for a specific economy.The curve on this graph is known as a:

Correct AnswerverifiedShow Answer

What will occur in the short run if there is cost-push inflation and if the government adopts a hands-off approach to it?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

Correct AnswerverifiedShow Answer

The characteristics of the long-run Phillips Curve suggest that the economy is generally stable at its natural rate of unemployment.

Correct AnswerverifiedShow Answer

In the long run,cost-push inflation results in a simultaneous decrease in the price level and real output.

Correct AnswerverifiedShow Answer

Demand-pull inflation and cost-push inflation are identical concepts because both entail rising nominal wages and rising prices.

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

-Refer to the above diagram for a specific economy.Which of the following best describes a decision by policymakers which moves this economy from point b to point a?

Correct AnswerverifiedShow Answer

Supply-side economists say that:

Correct AnswerverifiedShow Answer

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