Question 1

Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 percent and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6 percent.In the long run, the decline in the actual rate of inflation from 6 percent to 4 percent will:

Accepted Answer

A)  reduce the unemployment rate.
B)  reduce corporate profits in real terms.
C)  have no effect on the unemployment rate.
D)  reduce real domestic output.E) All of the above
F) A) and B)

Question 2

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

Question 3

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

Question 4

Refer to the above diagram.Supply-side economists believe that tax rates are:

Accepted Answer

A)  such that an increase in tax rates will increase tax revenues.
B)  at some level below b.
C)  at some level above b.
D)  at d.E) A) and D)
F) A) and B)

Question 5

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

Question 6

2 would be explained by an: A) increase in aggregate demand in the economy. B) increase in aggregate supply in the economy. C) actual rate of inflation that is less than the expected rate. D) actual rate of inflation that exceeds the expected rate." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.The move of the economy from c to e on short-run Phillips Curve PC2 would be explained by an:

Accepted Answer

A)  increase in aggregate demand in the economy.
B)  increase in aggregate supply in the economy.
C)  actual rate of inflation that is less than the expected rate.
D)  actual rate of inflation that exceeds the expected rate.E) A) and B)
F) A) and C)

Question 7

A rightward shift of The Phillips Curve would suggest that:

Accepted Answer

A)  the productivity of labour increased.
B)  each higher rate of inflation is now associated with a higher rate of unemployment than previously.
C)  cost-push inflation decreased.
D)  a lower rate of inflation is now associated with each rate of unemployment than previously.E) None of the above
F) A) and D)

Question 8

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

1, C1, B2, C2, B3, C3, and B4. B) a line connecting points C1, C2, and C3. C) a line connecting points B1, B2, B3, and B4. D) a line connecting points B1 and C1." class="answers-bank-image d-inline" rel="preload" > Refer to the above graph.The long-run relationship between the rate of inflation and the unemployment rate is represented by:

Accepted Answer

A)  the zigzag line connecting points B1, C1, B2, C2, B3, C3, and B4.
B)  a line connecting points C1, C2, and C3.
C)  a line connecting points B1, B2, B3, and B4.
D)  a line connecting points B1 and C1.E) A) and D)
F) None of the above

Question 12

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 13

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 14

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) B) and D)

Question 15

The short-run aggregate supply curve shifts to the left when nominal wages rise in response to price level increases.

Accepted Answer

A) True 
 B)False

Question 16

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 B)
F) A) and C)

Question 17

The Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:

Accepted Answer

A)  unemployment may actually increase because of the crowding-out effect.
B)  tax revenues may increase even though tax rates have been reduced.
C)  inflation may result.
D)  the natural rate of unemployment may fall.E) C) and D)
F) A) and C)

Question 18

In the long-run aggregate demand-aggregate supply model:

Accepted Answer

A)  long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve.
B)  the long-run aggregate supply curve is horizontal.
C)  the price level is the same regardless of the location of the aggregate demand curve.
D)  long-run equilibrium occurs at the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.E) A) and B)
F) C) and D)

Question 19

Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 percent and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6 percent.If the actual rate of inflation unexpectedly falls from 6 percent to 4 percent, then the unemployment rate will:

Accepted Answer

A)  temporarily fall from 7.5 percent to 4 percent.
B)  permanently fall from 7.5 percent to 4 percent.
C)  temporarily rise from 7.5 percent to 9.5 percent.
D)  permanently rise from 7.5 percent to 9.5 percent.E) All of the above
F) A) and C)

Question 20

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) C) and D)

Exam 16: Part B: Long-Run Macroeconomic Adjustments

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

Correct Answer
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The short-run aggregate supply curve shifts to the left when nominal wages rise in response to price level increases.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

In the long-run aggregate demand-aggregate supply model:

Correct Answer
verified

Refer to the above diagram.The move of the economy from c to e on short-run Phillips Curve PC₂ would be explained by an:

Correct Answer
verified

Refer to the above diagram.Supply-side economists believe that tax rates are:

Correct Answer
verified

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

Correct Answer
verified

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:

Correct Answer
verified

Refer to the above graph.The long-run relationship between the rate of inflation and the unemployment rate is represented by:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:

Correct Answer
verified

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

Correct Answer
verified

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

Correct Answer
verified

A rightward shift of The Phillips Curve would suggest that:

Correct Answer
verified

Prominent supply-side economist Arthur Laffer has argued that:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Exam 16: Part B: Long-Run Macroeconomic Adjustments

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

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve shifts to the left when nominal wages rise in response to price level increases.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long-run aggregate demand-aggregate supply model:

Correct AnswerverifiedShow Answer

Refer to the above diagram.The move of the economy from c to e on short-run Phillips Curve PC2 would be explained by an:

Correct AnswerverifiedShow Answer

Refer to the above diagram.Supply-side economists believe that tax rates are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Refer to the above graph.The long-run relationship between the rate of inflation and the unemployment rate is represented by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:

Correct AnswerverifiedShow Answer

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates, but they do not think that there is such a tradeoff in the long run.

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

A rightward shift of The Phillips Curve would suggest that:

Correct AnswerverifiedShow Answer

Prominent supply-side economist Arthur Laffer has argued that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Refer to the above diagram.The move of the economy from c to e on short-run Phillips Curve PC₂ would be explained by an:

Correct Answer
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Correct Answer
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Correct Answer
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