Question 1

In 1993 the federal government boosted income tax rates.In the seven years that followed,

Accepted Answer

A)  tax revenues fell slightly.
B)  productivity growth slowed.
C)  the unemployment rate increased.
D)  tax revenues expanded rapidly.E) C) and D)
F) B) and C)

Question 2

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

Accepted Answer

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 industriesE) None of the above
F) A) and C)

Question 3

Adverse aggregate supply shocks would result in

Accepted Answer

A)  a lower rate of inflation and a higher rate of unemployment.
B)  a higher rate of inflation and a lower rate of unemployment.
C)  a lower rate of inflation and a lower rate of unemployment.
D)  a higher rate of inflation and a higher rate of unemployment.E) None of the above
F) All of the above

Question 4

Based on the Phillips Curve, when the actual rate of inflation is greater than the expected rate, the unemployment rate will

Accepted Answer

A)  rise temporarily, but decreases in nominal wages will bring the expected and actual rates of inflation into balance.
B)  rise temporarily, but increases in nominal wages will bring the expected and actual rates of inflation into balance.
C)  fall temporarily, but increases in nominal wages will bring the expected and actual rates of inflation into balance.
D)  fall temporarily, but decreases in nominal wages will bring the actual and expected rates of inflation into balance.E) A) and C)
F) None of the above

Question 5

The basic problem portrayed by the traditional 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) B) and C)
F) A) and C)

Question 6

When the actual rate of inflation exceeds the expected rate

Accepted Answer

A)  the unemployment rate will temporarily rise.
B)  firms will experience rising profits and thus increase their employment.
C)  the actual rate of inflation will fall.
D)  nominal wages will decline.E) None of the above
F) All of the above

Question 7

In the extended analysis of aggregate supply, the short-run aggregate supply curve is

Accepted Answer

A)  vertical and the long-run aggregate supply curve is horizontal.
B)  horizontal and the long-run aggregate supply curve is vertical.
C)  upsloping and the long-run aggregate supply curve is vertical.
D)  horizontal and the long-run aggregate supply curve is upsloping.E) A) and C)
F) All of the above

Question 8

In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the

Accepted Answer

A)  long run.
B)  short run.
C)  immediate market period.
D)  very long run.E) A) and C)
F) None of the above

Question 9

If cost-push inflation occurs and the government adopts a hands-off policy approach, then, according to the simple extended AD-AS model, in the long run the economy will

Accepted Answer

A)  get back to where it started from.
B)  get stuck with high unemployment.
C)  experience an inflationary spiral.
D)  have a higher price level.E) A) and D)
F) A) and B)

Question 10

Disinflation occurs when

Accepted Answer

A)  the price level is falling.
B)  investment plans exceed saving.
C)  a speculative investment "bubble" is bursting.
D)  the inflation rate is declining.E) All of the above
F) B) and C)

Question 11

In the short run, nominal wages and other input prices are assumed to be

Accepted Answer

A)  unresponsive to product price-level changes, but in the long run they are assumed to be responsive.
B)  unresponsive to product price-level changes, and in the long run they are assumed to be unresponsive also.
C)  responsive to product price-level changes, but in the long run they are assumed to be unresponsive.
D)  responsive to product price-level changes, and in the long run they are assumed to be responsive also.E) A) and C)
F) A) and B)

Question 12

Inflation in the short run is most likely to result from a(n)

Accepted Answer

A)  increase in aggregate demand or aggregate supply.
B)  decrease in aggregate demand or aggregate supply.
C)  increase in aggregate demand or a decrease in aggregate supply.
D)  decrease in aggregate demand or an increase in aggregate supply.E) All of the above
F) C) and D)

Question 13

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

Question 14

Assume that a person saves $50,000 and earns 7 percent annual interest.If the marginal tax rate is 36 percent, then the after-tax interest earnings will be

Accepted Answer

A)  $2,000.
B)  $2,240.
C)  $2,760.
D)  $3,500.E) B) and C)
F) A) and D)

Question 15

When the actual rate of inflation is less than the expected rate,

Accepted Answer

A)  the unemployment rate will temporarily rise.
B)  firms will increase their output to recoup their falling profits.
C)  the unemployment rate will temporarily fall.
D)  firms will experience rising profits and thus increase their employment.E) All of the above
F) A) and B)

Question 16

In the long run, if the price level increases, then nominal wages and other input prices will

Accepted Answer

A)  also rise, so firms will reduce their output level.
B)  also rise, so firms will not change their output level.
C)  not change, so firms will not change their output level.
D)  decrease, so firms will increase their output level.E) All of the above
F) None of the above

Question 17

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

Question 18

One significant criticism of the major proposition of supply-side economics during the period 1980-1988 was that

Accepted Answer

A)  the tight monetary policy of the Federal Reserve slowed the growth of the economy and caused a severe recession.
B)  major sectors of the economy failed to achieve optimal efficiency from increased regulation by government.
C)  there was a significant increase in the rate of unemployment over the period.
D)  growth in the productive capacity of the economy did not exceed the historical pace.E) A) and B)
F) None of the above

Question 19

The implication of the long-run Phillips Curve is that there is no trade-off between inflation and unemployment in the long-run.

Accepted Answer

A) True 
 B)False

Question 20

A potential cause of stagflation is

Accepted Answer

A)  agricultural surpluses.
B)  declining productivity.
C)  improving labor productivity.
D)  a rise in the value of the dollar.E) A) and C)
F) B) and C)

Exam 38: Extending the Analysis of Aggregate Supply

Adverse aggregate supply shocks would result in

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When the actual rate of inflation exceeds the expected rate

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

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In the extended analysis of aggregate supply, the short-run aggregate supply curve is

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In 1993 the federal government boosted income tax rates.In the seven years that followed,

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When the actual rate of inflation is less than the expected rate,

Correct AnswerverifiedShow Answer

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

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Inflation in the short run is most likely to result from a(n)

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

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In the short run, nominal wages and other input prices are assumed to be

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Based on the Phillips Curve, when the actual rate of inflation is greater than the expected rate, the unemployment rate will

Correct AnswerverifiedShow Answer

The implication of the long-run Phillips Curve is that there is no trade-off between inflation and unemployment in the long-run.

Correct AnswerverifiedShow Answer

If cost-push inflation occurs and the government adopts a hands-off policy approach, then, according to the simple extended AD-AS model, in the long run the economy will

Correct AnswerverifiedShow Answer

Assume that a person saves $50,000 and earns 7 percent annual interest.If the marginal tax rate is 36 percent, then the after-tax interest earnings will be

Correct AnswerverifiedShow Answer

Disinflation occurs when

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In the long run, if the price level increases, then nominal wages and other input prices will

Correct AnswerverifiedShow Answer

One significant criticism of the major proposition of supply-side economics during the period 1980-1988 was that

Correct AnswerverifiedShow Answer

In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the

Correct AnswerverifiedShow Answer

The basic problem portrayed by the traditional Phillips Curve is

Correct AnswerverifiedShow Answer

A potential cause of stagflation is

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