Chapter 16: Supply-side Policy: Short-run Options

Supply-siders' view of policy pertaining to saving and investment assumes the following order of events: (Place in order) A. People have more incentive to save B. Government cuts marginal tax rates on interest income and income from capital C. As savings increase, more funds are made available for investments

1. B 2. A 3. C

Suppose you decide to work for a few extra hours a week and, as a result, earn an extra $90. If because of this added income you must pay an extra $18 in taxes, your marginal ta rate is _____%.

20

Along with a "misery index" of 9.8%, suppose the economy's inflation rate is 3.9%. This means its unemployment rate must be ___%.

5.9

A rightward AS shift causes a: (Click the answer you think is right) A. Leftward Phillips curve shift B. Rightward Phillips curve shift C. Leftward AD curve shift D. Rightward AD curve shift

A

Policymakers understand that there is a point of output identified on the AS curve where inflationary pressures intensify. This is known as the: (Click the answer you think is right) A. Inflationary flashpoint B. Output flashpoint C. Interest rate D. Inflation rate

A

Stagflation results when the aggregate _____ curve shifts _____, all else remaining constant. (Click the answer you think is right) A. Supply; leftward B. Supply; rightward C. Demand; rightward D. Demand; leftward

A

The Keynesian AS curve was given the shape it has because Keynes was primarily concerned with the problem of: (Click the answer you think is right) A. Unemployment B. Inflation C. Deficits and debt D. Inequality

A

The tax rate imposed on the last dollar of income is the: (Click the answer you think is right) A. Marginal tax rate B. Total tax rate C. Average tax rate

A

When the aggregate supply curve is upward-sloping, shifts in aggregate demand cause the price level and real output to move in the same direction, suggesting a trade-off between _____. This trade-off relationship is summarized by the _____ curve. (Click the answer you think is right) A. Inflation and unemployment; Phillips B. Output and unemployment; AS C. Output and unemployment; Phillips D. Inflation and unemployment; AS

A

Whenever aggregate demand shifts, there should be opposite movements between: (Click the answer you think is right) A. Inflation and unemployment B. Inflation and trade C. Employment and inflation D. Budget and trade E. Budget and trade F. Employment and output

A

If the aggregate demand curve increases, (Check all that apply) A. Inflation increases B. Unemployment decreases C. Real output increases D. Inflation decreases E. Real output decreases F. Unemployment increases

A, B, C

Marginal tax rates will impact which of the following: (Check all that apply) A. Investment decisions B. Incentives to work C. Incentives to start a business D. The Phillips curve

A, B, C

Which government policies increase costs of production? (Check all that apply) A. Occupational health and safety standards B. Minimum wages C. Mandatory benefits D. Deregulation

A, B, C

Which of the following constitute the three forms in which AS increases following a reduction in marginal tax rates? (3) (Check all that apply) A. More entrepreneurship B. Greater work effort C. More capital investment D. More saving E. Less government intrusion

A, B, C

Which of the following could be used by policymakers to shift the AS rightward? (Check all that apply) A. Trade liberalization B. Human capital investment C. Deregulation D. Increases in regulation E. Higher taxes

A, B, C

If the aggregate demand curve decreases, (Check all that apply) A. Inflation decreases B. Real output decreases C. Real output increases D. Unemployment increases E. Inflation increases F. Unemployment decreases

A, B, D

A negative supply shock in the short run causes both _____ and _____ to rise which is usually referred to as stagflation. (Click the answer you think is right) A. Inflation; employment B. Unemployment; inflation C. Production; unemployment D. Inflation; production

B

An increase in AD is unlikely to result in much inflation when the hybrid AS curve is relatively: (Click the answer you think is right) A. Short B. Flat C. Steep

B

As the skills gap between unemployed workers and the requirements of emerging jobs gets _____, the Phillips curve trade-off _____. (Click the answer you think is right) A. Smaller; worsens B. Larger; worsens C. Larger; improves

B

The tax elasticity of supply is calculated by: (Click the answer you think is right) A. (% change in tax rate) / (% change in quantity supplied) B. (% change in quantity supplied) / (% change in tax rates) C. (% change in quantity supplied) & (% change in tax rate) D. (% change in tax rate) & (% change in quantity supplied)

B

According to supply-side economists, rising taxes in the U.S have adversely affected incentives to: (Check all that apply) A. Consume and enjoy goods B. Work and produce C. Export and import D. Save and invest

B, D

Which of the following could be used by policymakers to shift the AS rightward? (Check all that apply) A. Increases in minimum wage B. Human capital investment C. Increased regulation D. Trade liberalization E. Tax incentives for saving

B, D, E

Which of the following could be used by policymakers to shift the AS rightward? (Check all that apply) A. Increases in regulation B. Deregulation C. Higher taxes D. Human capital investment E. Trade liberalization

B, D, E

If the Phillips curve has shifted to the left, then it must be the case that the AS curve has: (Click the answer you think is right) A. Shifted leftward B. Become linear C. Shifted rightward

C

Stagflation is a period with the simultaneous rising of: (Click the answer you think is right) A. Production, output, and inflation rates B. Inflation but falling unemployment rates C. Unemployment and inflation rates D. Unemployment but falling inflation rates

C

When the aggregate supply curve is upward-sloping, shifts in aggregate demand cause the price level and real output to move in ______, suggesting a trade-off between _____. (Click the answer you think is right) A. Opposite directions; output and unemployment B. Opposite directions; inflation and unemployment C. The same direction; inflation and unemployment D. The same direction; output and unemployment

C

Many economists today agree that in the short run, as aggregate demand decreases, (Click the answer you think is right) A. Both the inflation and unemployment rates fall B. The unemployment rate falls while the inflation rates rises C. Both the unemployment and inflation rates rise D. The unemployment rate rises while the inflation rate falls

D

Policymakers understand that there is a point of output identified on the AS curve where inflationary pressures intensify. This is known as the inflationary _____.

flashpoint

According to the Phillips curve, policies that aim to lower unemployment will cause _____ (lower/negative/higher) inflation.

higher

The "naive" Keynesian AS curve is _____ when the economy is in a recession.

horizontal

The "no child left behind" program was President George H. Bush's attempt to improve _____ capital.

human

A fast solution to skill shortages in U.S labor markets can occur through changes in _____ policy.

immigration

Along the hybrid short-run aggregate supply curve (SRAS), output increases when the price level ____.

increases

According to the hybrid AS curve, an increase in AD is _____ (more/less) likely to result in inflation the closer the economy is to full employment.

more

According to monetarist thinking, real output always remains at its _____ (standard/natural/steady) rate, regardless of policy interventions

natural

A lump-sum refund of taxes previously paid is a tax _____.

rebate

If the aggregate supply curve is upward-sloping, aggregate demand _____ (stimulus/restraint) will cause both prices and output to fall.

restraint

Programs that reduce discrimination tend to shift aggregate supply to the _____ (left/right).

right

Both prices and output will rise along an upward-sloping AS curve if the AD curve shifts _____ (leftward/rightward)

rightward

With the hybrid AS curve, the closer the economy is to capacity (full employment), the _____ (steeper/flatter) is the AS curve.

steeper

The unemployment that is due to the mismatch between the skills of the workforce and the skills needed for new jobs is known as _____ unemployment.

structural

When the aggregate _____ curve shifts to the right, both unemployment and inflation are reduced.

supply