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What are the major criticisms of the Laffer curve?

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Critics say empirical evidence shows tha...

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Refer to the graphs. Assume that the economy starts out at point D in Graph 2, whereas full employment would be attained at point C. The Phillips curve shown suggests that full employment A) can be attained only with a higher inflation rate. B) may be attained along with a lower inflation rate. C) cannot be attained regardless of inflation rate. D) can be attained by implementing restrictive fiscal or monetary policy. Refer to the graphs. Assume that the economy starts out at point D in Graph 2, whereas full employment would be attained at point C. The Phillips curve shown suggests that full employment


A) can be attained only with a higher inflation rate.
B) may be attained along with a lower inflation rate.
C) cannot be attained regardless of inflation rate.
D) can be attained by implementing restrictive fiscal or monetary policy.

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

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In the extended aggregate demand-aggregate supply model,


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

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Which event probably contributed to the stagflation of the 1970s?


A) worldwide agricultural surpluses
B) an improvement in productivity of resources
C) an appreciation in the dollar
D) a sharp rise in the price of oil

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

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A rightward shift of the Phillips Curve suggests that


A) a higher rate of unemployment is associated with each level of inflation rate.
B) a lower rate of inflation is associated with each level of unemployment rate.
C) the aggregate supply curve has shifted to the right.
D) the aggregate demand curve has shifted to the left.

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

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In the short run, if the actual rate of inflation falls lower than the expected rate, then


A) profits will temporarily fall and unemployment will temporarily rise.
B) profits will temporarily rise and unemployment will temporarily fall.
C) nominal wages will rise, profits will rise, and unemployment will fall.
D) nominal wages will fall, profits will fall, and unemployment will rise.

E) All of the above
F) B) and D)

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A) a shift of aggregate demand from A D _ { 1 } to A D _ { 2 } , followed by a shift of aggregate supply from \mathrm { AS } _ { 1 } to \mathrm { AS } _ { 2 } . B) a move from d to b to a. C) a shift of aggregate supply from \mathrm { AS } _ { 1 } to \mathrm { AS } _ { 2 } , followed by a shift of aggregate demand from A D _ { 1 } to A D _ { 2 } D) a move from a to d.


A) a shift of aggregate demand from AD1A D _ { 1 } to AD2A D _ { 2 } , followed by a shift of aggregate supply from AS1\mathrm { AS } _ { 1 } to AS2\mathrm { AS } _ { 2 } .
B) a move from d to b to a.
C) a shift of aggregate supply from AS1\mathrm { AS } _ { 1 } to AS2\mathrm { AS } _ { 2 } , followed by a shift of aggregate demand from AD1A D _ { 1 } to AD2A D _ { 2 }
D) a move from a to d.

E) A) and B)
F) B) and D)

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The short-run aggregate supply curve


A) is vertical, and the long-run aggregate supply curve is vertical.
B) slopes upward, and the long-run aggregate supply curve also slopes upward.
C) slopes upward, but the long-run aggregate supply curve is horizontal.
D) slopes upward, but the long-run aggregate supply curve is vertical.

E) None of the above
F) A) and B)

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Refer to the graphs. An increase in an economy's labor productivity would shift curve A) AB to CD and shift curve Y to X. B) CD to AB and shift curve X to Y. C) AB to CD and shift curve X to Y. D) X to Y, while leaving curve AB in place. Refer to the graphs. An increase in an economy's labor productivity would shift curve


A) AB to CD and shift curve Y to X.
B) CD to AB and shift curve X to Y.
C) AB to CD and shift curve X to Y.
D) X to Y, while leaving curve AB in place.

E) None of the above
F) B) and C)

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Refer to the graph. What events would tend to temporarily move the economy from point B _ { 2 } \text { to } C _ { 2 } ? A) a tight monetary policy B) a contractionary ?scal policy C) an easy money policy D) an increase in aggregate supply Refer to the graph. What events would tend to temporarily move the economy from point B2 to C2B _ { 2 } \text { to } C _ { 2 } ?


A) a tight monetary policy
B) a contractionary ?scal policy
C) an easy money policy
D) an increase in aggregate supply

E) A) and B)
F) B) and D)

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Refer to the graph. Assume that the economy is initially at equilibrium at point A. If there is a recession in the economy because AD A D _ { 1 } \text { shifts to } A D _ { 2 } \text {, } , and wages and prices are ?exible, then in the Long run the price level will be A) P _ { 2 } \text { and real output will be } Q _ { f } \text {. } B) P _ { 3 } \text { and real output will be } Q _ { f } \text {. } C) P _ { 1 } \text { and real output will be } Q _ { f } \text {. } D) P2 and real output will be Q1. Refer to the graph. Assume that the economy is initially at equilibrium at point A. If there is a recession in the economy because AD AD1 shifts to AD2, A D _ { 1 } \text { shifts to } A D _ { 2 } \text {, } , and wages and prices are ?exible, then in the Long run the price level will be


A) P2 and real output will be Qf. P _ { 2 } \text { and real output will be } Q _ { f } \text {. }
B) P3 and real output will be Qf. P _ { 3 } \text { and real output will be } Q _ { f } \text {. }
C) P1 and real output will be Qf. P _ { 1 } \text { and real output will be } Q _ { f } \text {. }
D) P2 and real output will be Q1.

E) None of the above
F) A) and B)

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Refer to the graph. Stag?ation in the short run is best represented as resulting from a shift of A) A D _ { 1 } \text { to } A D _ { 2 } \text {, given a stable } A S _ { 1 } \text { curve. } B) A D _ { 2 } \text { to } A D _ { 1 } \text {, given a stable } A S _ { 1 } \text { curve. } C) A S _ { 1 } \text { to } A S _ { 2 } \text {, given a stable } A D _ { 1 } \text { curve. } D) \mathrm { AS } _ { 2 } \text { to } A S _ { 1 } \text {, given a stable } A D _ { 1 } \text { curve. } Refer to the graph. Stag?ation in the short run is best represented as resulting from a shift of


A) AD1 to AD2, given a stable AS1 curve. A D _ { 1 } \text { to } A D _ { 2 } \text {, given a stable } A S _ { 1 } \text { curve. }
B) AD2 to AD1, given a stable AS1 curve. A D _ { 2 } \text { to } A D _ { 1 } \text {, given a stable } A S _ { 1 } \text { curve. }
C) AS1 to AS2, given a stable AD1 curve. A S _ { 1 } \text { to } A S _ { 2 } \text {, given a stable } A D _ { 1 } \text { curve. }
D) AS2 to AS1, given a stable AD1 curve. \mathrm { AS } _ { 2 } \text { to } A S _ { 1 } \text {, given a stable } A D _ { 1 } \text { curve. }

E) All of the above
F) C) and D)

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A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is associated with each inflation rate.

A) True
B) False

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The short-run aggregate supply curve is upsloping because higher price levels


A) lower interest rates and encourage firms to invest and produce more.
B) create incentives to expand output when resource prices are unresponsive to price-level changes.
C) encourage importation of foreign goods.
D) create an expectation among producers of still higher price levels.

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

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Most economists think that


A) supply-side effects of a tax cut exceed the demand-side effects.
B) demand-side effects of a tax cut exceed the supply-side effects.
C) demand-side and supply-side effects of a tax cut offset each other.
D) there are only supply-side effects from a tax cut.

E) A) and B)
F) A) and D)

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What is the long-run equilibrium in the extended aggregate demand and aggregate supply model?

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Long-run equilibrium occurs at the inter...

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Refer to the graph. If the economy is initially at equilibrium at the intersection of AD1 and AS1 and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that Aggregate A) demand would increase to AD \mathrm { AD } _ { 2 } and aggregate supply would increase to A \mathrm { AS } _ { 2 } B) demand would increase to AD \mathrm { AD } _ { 2 } and aggregate supply would remain at A \mathrm { AS } _ { 1 } . C) supply would increase to A \mathrm { AS } _ { 2 } and aggregate demand would remain at AD A D _ { 1 } D) demand would remain at AD A D _ { 1 } and aggregate supply would remain at A \mathrm { AS } _ { 1 } Refer to the graph. If the economy is initially at equilibrium at the intersection of AD1 and AS1 and there is a tax cut, then, from a skeptical mainstream perspective, the immediate impact is that Aggregate


A) demand would increase to AD AD2\mathrm { AD } _ { 2 } and aggregate supply would increase to A
AS2\mathrm { AS } _ { 2 }
B) demand would increase to AD AD2\mathrm { AD } _ { 2 } and aggregate supply would remain at A
AS1.\mathrm { AS } _ { 1 } .
C) supply would increase to A AS2\mathrm { AS } _ { 2 } and aggregate demand would remain at AD
AD1A D _ { 1 }
D) demand would remain at AD AD1A D _ { 1 } and aggregate supply would remain at A
AS1\mathrm { AS } _ { 1 }

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

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Which factor contributed to the demise of stagflation during the 1982-1989 period?


A) a lessening of foreign competition
B) the decline of the monopoly power of OPEC
C) an increase in the per-unit cost of production
D) an increase in regulation of the airline and trucking industries

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

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A senator states, "We need to cut taxes in order to increase incentives to work and produce, so that we can pull the nation out of this economic slump." A mainstream economist who is a critic of this Policy would likely reply that


A) rather than cutting taxes, there should be a decrease in government spending to address the problem.
B) rather than cutting taxes, monetary policy should become tighter to control the inflation rate.
C) increasing government spending is a surer way to increase production and pull the nation out of this economic slump.
D) cutting taxes will only reduce output further and aggravate the situation.

E) None of the above
F) A) and B)

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A) nominal wages and other input prices are assumed to be ?xed. B) \text { real output level } Q _ { f } \text { is the potential level of output. } C) price level increases produce perfectly offsetting changes in nominal wages and other input prices. D) higher-than-expected rates of actual in?ation reduce real output only temporarily.


A) nominal wages and other input prices are assumed to be ?xed.
B)  real output level Qf is the potential level of output. \text { real output level } Q _ { f } \text { is the potential level of output. }
C) price level increases produce perfectly offsetting changes in nominal wages and other input prices.
D) higher-than-expected rates of actual in?ation reduce real output only temporarily.

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

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