Question 1

According to the simple extended AD-AS model, demand-pull inflation and cost-push inflation have the same effect on output in the long run.

Accepted Answer

A) True 
 B)False

Question 2

If wages and other input prices are inflexible, then the economy will not automatically adjust to full employment in the long run.

Accepted Answer

A) True 
 B)False

Question 3

In the graphs below, QP refers to the economy's potential output level. P refers to the economy's potential output level.   Refer to the graphs above. In Graph A, a decrease in the price level from P1 to P3 will lead to: A)  A decrease in profits, an increase in real output, and a decrease in the unemployment rate B)  A decrease in profits, a decrease in real output, and a decrease in the unemployment rate C)  A decrease in profits, a decrease in real output, and an increase in the unemployment rate D)  An increase in profits, an increase in real output, and a decrease in the unemployment rate" class="answers-bank-image d-inline" rel="preload" > Refer to the graphs above. In Graph A, a decrease in the price level from P1 to P3 will lead to:

Accepted Answer

A)   A decrease in profits, an increase in real output, and a decrease in the unemployment rate
B)   A decrease in profits, a decrease in real output, and a decrease in the unemployment rate
C)   A decrease in profits, a decrease in real output, and an increase in the unemployment rate
D)   An increase in profits, an increase in real output, and a decrease in the unemployment rateE) C) and D)
F) All of the above

Question 4

One criticism against "supply-side" 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 supplyE) B) and C)
F) A) and D)

Question 5

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 levelE) None of the above
F) B) and D)

Question 6

Equilibrium in the long run occurs when:

Accepted Answer

A)   AD intersects the short-run AS, regardless of output level
B)   AD intersects the short-run AS, regardless of price level
C)   AD intersects the short-run and the long-run AS curves at the same point
D)   The short-run AS curve intersects the long-run AS curveE) None of the above
F) A) and C)

Question 7

In the cost-push model of inflation, increases in nominal-wage rates that exceed increases in the productivity of labor:

Accepted Answer

A)   Increase aggregate supply and the price level in the economy
B)   Increase aggregate supply and decrease the price level in the economy
C)   Decrease aggregate supply and the price level in the economy
D)   Decrease aggregate supply and increase the price level in the economyE) All of the above
F) B) and D)

Question 8

In the graphs below, QP refers to the economy's potential output level. P refers to the economy's potential output level.   Refer to the graphs above. In Graph B, assume that the economy is initially in equilibrium at point x1 but then there is an increase in the price level from P1 to P2. This change will lead to: A)  A movement from x1 to x2 in the short run, and the unemployment rate decreases, followed by a shift from x2 to y1 as nominal wages rise in the long run B)  A movement from x1 to x3 in the short run, and the unemployment rate decreases, followed by a shift from x3 to x1 as output rises in the long run C)  A movement from x1 to y1 in the short run, and back to x1 in the long run D)  No change in the short run, but a shift from x1 to y1 in the long run" class="answers-bank-image d-inline" rel="preload" > Refer to the graphs above. In Graph B, assume that the economy is initially in equilibrium at point x1 but then there is an increase in the price level from P1 to P2. This change will lead to:

Accepted Answer

A)   A movement from x1 to x2 in the short run, and the unemployment rate decreases, followed by a shift from x2 to y1 as nominal wages rise in the long run
B)   A movement from x1 to x3 in the short run, and the unemployment rate decreases, followed by a shift from x3 to x1 as output rises in the long run
C)   A movement from x1 to y1 in the short run, and back to x1 in the long run
D)   No change in the short run, but a shift from x1 to y1 in the long runE) A) and D)
F) A) and C)

Question 9

If prices and wages are flexible, a decrease in aggregate demand will in the long run cause only a(n) :

Accepted Answer

A)   Decrease in the price level
B)   Increase in the price level
C)   Increase in the unemployment rate
D)   Decrease in real outputE) A) and B)
F) A) and C)

Question 10

Which presidential administration is most closely associated with the economic policies of supply-side economics?

Accepted Answer

A)   Clinton
B)   Nixon
C)   Reagan
D)   BushE) B) and C)
F) A) and B)

Question 11

The idea that reductions in tax rates will increase tax revenue is illustrated by the:

Accepted Answer

A)   Laffer Curve
B)   Short-run Phillips Curve
C)   Long-run Phillips Curve
D)   Aggregate supply curveE) A) and B)
F) A) and C)

Question 12

The short run in macroeconomics is a period in which nominal wages remain fixed even as the general price level changes.

Accepted Answer

A) True 
 B)False

Question 13

The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand:

Accepted Answer

A)   Influences real output and employment in the long run, but not in the short run
B)   Influences real output and employment in the short run, but not in the long run
C)   Does not influence the price level in the short run or the long run but only real output and employment
D)   Does not influence real output and employment in the short run or the long run but only the price levelE) A) and C)
F) B) and D)

Question 14

In the long run, demand-pull inflation:

Accepted Answer

A)   Starts out with a shift in the AS curve, but no shift of the AD curve
B)   Starts out with a rightward shift in the AD curve, followed by a resulting leftward shift of the short-run AS curve
C)   Starts out with a leftward shift in the AD curve, followed by a resulting rightward shift of the short-run AS curve
D)   Involves a shift of the AD curve only, with no shift of the AS curveE) B) and C)
F) All of the above

Question 15

When the rate of inflation is decreasing, this economic condition is called:

Accepted Answer

A)   Disinflation
B)   Depreciation
C)   Stagflation
D)   DeflationE) All of the above
F) None of the above

Question 16

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent. Should inflation actually be 6 percent, then:

Accepted Answer

A)   Nominal wages fall by 5 percent
B)   Real wages fall by 6 percent
C)   Nominal wages fall by 1 percent
D)   Real wages fall by 1 percentE) None of the above
F) B) and D)

Question 17

If the government uses expansionary monetary or fiscal policies to counter the output-effects of cost-push inflation, then the economy is likely to experience:

Accepted Answer

A)   A decline in nominal wages
B)   An inflationary spiral
C)   A recession
D)   DisinflationE) B) and D)
F) A) and C)

Question 18

Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift:

Accepted Answer

A)   The aggregate demand curve to the right
B)   The aggregate supply curve to the right
C)   Both the aggregate supply curve and the aggregate demand curve to the right
D)   The aggregate supply curve to the right and the aggregate demand curve to the leftE) B) and C)
F) A) and D)

Question 19

If the expected rate of inflation rises, then the short-run Phillips Curve would:

Accepted Answer

A)   Shift to the right
B)   Shift to the left
C)   Become vertical
D)   Become flatE) All of the above
F) A) and B)

Question 20

In the short run, output increases with the price level, but not in the long run.

Accepted Answer

A) True 
 B)False

Exam 18: Extending the Analysis of Aggregate Supply

In the cost-push model of inflation, increases in nominal-wage rates that exceed increases in the productivity of labor:

Correct AnswerverifiedShow Answer

In the graphs below, QP refers to the economy's potential output level. Refer to the graphs above. In Graph A, a decrease in the price level from P1 to P3 will lead to:

Correct AnswerverifiedShow Answer

If the expected rate of inflation rises, then the short-run Phillips Curve would:

Correct AnswerverifiedShow Answer

Equilibrium in the long run occurs when:

Correct AnswerverifiedShow Answer

The short run in macroeconomics is a period in which nominal wages remain fixed even as the general price level changes.

Correct AnswerverifiedShow Answer

In the long run, demand-pull inflation:

Correct AnswerverifiedShow Answer

If wages and other input prices are inflexible, then the economy will not automatically adjust to full employment in the long run.

Correct AnswerverifiedShow Answer

Which presidential administration is most closely associated with the economic policies of supply-side economics?

Correct AnswerverifiedShow Answer

Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift:

Correct AnswerverifiedShow Answer

In the graphs below, QP refers to the economy's potential output level. Refer to the graphs above. In Graph B, assume that the economy is initially in equilibrium at point x1 but then there is an increase in the price level from P1 to P2. This change will lead to:

Correct AnswerverifiedShow Answer

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent. Should inflation actually be 6 percent, then:

Correct AnswerverifiedShow Answer

According to the simple extended AD-AS model, demand-pull inflation and cost-push inflation have the same effect on output in the long run.

Correct AnswerverifiedShow Answer

If the government uses expansionary monetary or fiscal policies to counter the output-effects of cost-push inflation, then the economy is likely to experience:

Correct AnswerverifiedShow Answer

One criticism against "supply-side" cuts in marginal tax rates is that they fail to:

Correct AnswerverifiedShow Answer

In the short-run, demand-pull inflation increases:

Correct AnswerverifiedShow Answer

The idea that reductions in tax rates will increase tax revenue is illustrated by the:

Correct AnswerverifiedShow Answer

In the short run, output increases with the price level, but not in the long run.

Correct AnswerverifiedShow Answer

If prices and wages are flexible, a decrease in aggregate demand will in the long run cause only a(n) :

Correct AnswerverifiedShow Answer

The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand:

Correct AnswerverifiedShow Answer

When the rate of inflation is decreasing, this economic condition is called:

Correct AnswerverifiedShow Answer

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In the graphs below, Q_P refers to the economy's potential output level. Refer to the graphs above. In Graph A, a decrease in the price level from P₁ to P₃ will lead to:

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In the graphs below, Q_P refers to the economy's potential output level. Refer to the graphs above. In Graph B, assume that the economy is initially in equilibrium at point x₁ but then there is an increase in the price level from P₁ to P₂. This change will lead to:

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