Question 1

The economy enters the long run once:

Accepted Answer

A)  nominal wages become real wages.
B)  real wages become nominal wages.
C)  input prices start to change from being inflexible to fully flexible.
D)  sufficient time has elapsed for real GDP to increase and unemployment to decrease.E) All of the above
F) A) and B)

Question 2

In the long-run, the attempt to correct slow economic growth or the unemployment caused by cost-push inflation by implementing an expansionary fiscal policy will most likely produce:

Accepted Answer

A)  disinflation.
B)  a recession.
C)  a price level surprise.
D)  inflationE) A) and C)
F) B) and C)

Question 3

The long-run aggregate supply curve:

Accepted Answer

A)  is downward sloping.
B)  is vertical.
C)  is horizontal.
D)  is upward sloping.E) A) and C)
F) A) and B)

Question 4

Prominent supply-side economist Arthur Laffer has argued that:

Accepted Answer

A)  there is no empirically proven relationship between tax rates and incentives.
B)  large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.
C)  the only way to eliminate stagflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations.
D)  large cuts in personal and corporate income taxes will increase aggregate demand more than aggregate supply.E) A) and C)
F) A) and B)

Question 5

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) B) and C)
F) All of the above

Question 6

If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur, then the:

Accepted Answer

A)  economy is operating in the short run.
B)  economy has entered the long run.
C)  unemployment rate will increase.
D)  inflation rate will decrease.E) A) and B)
F) A) and C)

Question 7

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) All of the above

Question 8

Cost-push inflation results directly from a(n) :

Accepted Answer

A)  decrease in per unit production costs that shift the short-run aggregate supply curve to the right.
B)  increase in per unit production costs that shift the short-run aggregate supply curve to the left
C)  increase in government spending.
D)  decrease in government regulation.E) None of the above
F) A) and C)

Question 9

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 B)
F) B) and D)

Question 10

Aggregate supply shocks will:

Accepted Answer

A)  move the economy along the Phillips Curve toward less unemployment.
B)  move the economy along the Phillips Curve toward less inflation.
C)  shift the Phillips Curve to the left.
D)  shift the Phillips Curve to the right.E) A) and D)
F) A) and C)

Question 11

The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 12

Refer to the diagram given below. 2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will: A) shift the aggregate supply curve from AS2 to AS3. B) increase the real output from Q1 to Q2. C) shift the aggregate supply curve from AS2 to AS1. D) increase the real output from Qf to Q2." class="answers-bank-image d-inline" rel="preload" > Assume that nominal wages are initially set on the basis of the price level P2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will:

Accepted Answer

A)  shift the aggregate supply curve from AS2 to AS3.
B)  increase the real output from Q1 to Q2.
C)  shift the aggregate supply curve from AS2 to AS1.
D)  increase the real output from Qf to Q2.E) A) and B)
F) C) and D)

Question 13

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) A) and B)

Question 14

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

Question 15

Although the increase in long-run aggregate supply (other things equal) , would expand real GDP and lower the price level, the declines in the price level has not been part of Canada's growth experience.This is because:

Accepted Answer

A)  the Bank of Canada has taken no action to change the nation's money supply.
B)  the Bank of Canada has increased the money supply much less than the increase in aggregate supply.
C)  the increase in the money supply by Bank of Canada has matched the increase in aggregate supply.
D)  the Bank of Canada usually engineers inflationary rightward shifts of the aggregate demand curve that are faster than the deflationary rightward shifts of the aggregate supply curve.E) C) and D)
F) B) and D)

Question 16

Which of the following is true of disinflation?

Accepted Answer

A)  It is a reduction in the inflation rate from year to year.
B)  It is used to describe instances when the inflation rate is negative.
C)  It refers to misinformation about the real and nominal rates of inflation.
D)  It refers to miscalculations about the inflation rates.E) B) and C)
F) None of the above

Question 17

In the long-run, any inflation that occurs in the economy is the result of:

Accepted Answer

A)  the reduction in the rate of increase in money supply.
B)  the growth of aggregate supply.
C)  the growth of aggregate demand.
D)  the growth of real GDP.E) None of the above
F) A) and C)

Question 18

A rightward shift of the Phillips Curve suggests that:

Accepted Answer

A)  a higher rate of unemployment is associated with each inflation rate.
B)  a lower rate of unemployment is associated with each inflation rate.
C)  the aggregate supply curve has shifted to the right.
D)  the aggregate demand curve has shifted to the left.E) A) and B)
F) None of the above

Question 19

Refer to the above diagram for a specific economy.Stagflation will:

Accepted Answer

A)  shift this curve outward.
B)  shift this curve inward.
C)  move this economy southeast along the curve.
D)  move this economy northwest along the curve.E) C) and D)
F) All of the above

Question 20

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

Exam 16: B: Long-Run Macroeconomic Adjustments

The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of unemployment.

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

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Aggregate supply shocks will:

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The long-run aggregate supply curve:

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Prominent supply-side economist Arthur Laffer has argued that:

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Which of the following is true of disinflation?

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Refer to the above diagram for a specific economy.Stagflation will:

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In the long-run, the attempt to correct slow economic growth or the unemployment caused by cost-push inflation by implementing an expansionary fiscal policy will most likely produce:

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Supply-side economists say that:

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Although the increase in long-run aggregate supply (other things equal) , would expand real GDP and lower the price level, the declines in the price level has not been part of Canada's growth experience.This is because:

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A rightward shift of the Phillips Curve suggests that:

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In the short run, demand-pull inflation increases:

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Economic growth driven by supply factors causes:

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Cost-push inflation results directly from a(n) :

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An adverse aggregate supply shock:

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The economy enters the long run once:

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If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur, then the:

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In the long-run, any inflation that occurs in the economy is the result of:

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Critics of supply-side economics:

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Refer to the diagram given below. Assume that nominal wages are initially set on the basis of the price level P2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will:

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Refer to the diagram given below. Assume that nominal wages are initially set on the basis of the price level P₂ and that the economy is initially operating at the full-employment level of output Q_f.In the short run, an increase in the price level from P₂ to P₃ will:

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