6 part 1

11) The short-run aggregate supply curve is upward sloping because in the short run the A) money wage rate (or other input prices) changes but the price level does not. B) price level changes but the money wage rate (or other input prices) does not. C) neither the money wage rate (or other input prices) nor the price level can change. D) both the money wage rate (or other input prices) and the price level change.

B

16) Which of the following could start a demand-pull inflation? A) an increase in the money prices of raw materials B) an increase in government expenditures C) an increase in imports D) a decrease in the quantity of money

B

2) The forces that generate economic growth are those that shift the A) aggregate demand curve left ward. B) long-run aggregate supply curve rightward. C) long-run aggregate supply curve left ward. D) None of the above answers are correct

B

9) If the economy is on the negative slope of the Laffer curve and you raise taxes: A) tax revenues will rise B) tax revenues will fall. C) international trade will increase. D) national income will rise.

B

4) Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in: A) quantity of labor. B) quality and quantity of other inputs. C) quantity of capital (physical capital and human capital). D) technology. E) all of the answers in this question.

E

1) The true believers of the New Classical theories hold to which of the following? A) Government public assistance programs such as unemployment insurance programs make unemployment worse and should be eliminated. B) Aggregate supply is ʺpassiveʺ in the Keynesian IS-LM model. C) Actual GDP always equals potential GDP. D) All unemployment is voluntary. E) All of the answers in this question are true.

E

5) What caused the stagflation of the 1970s? A) 1973 oil shock B) 1979 oil shock C) collapse of the Bretton-Woods fixed exchange rate system D) sharp increase in agriculture prices E) all of the answers in this question

E

12) If both the unemployment rate and the inflation rate decrease over a long period of time, you predict that ________. A) the natural unemployment rate has decreased (U* or N*) B) the natural unemployment rate has increased C) the economy has moved along its short-run Phillips curve D) the expected inflation rate has increased

A

13) The long-run Phillips curve A) is vertical. B) is horizontal. C) slopes downward. D) slopes upward.

A

14) The short-run Phillips curve represents the trade-off between unemployment and: A) inflation. B) real GDP. C) price level. D) taxes

A

15) The Phillips curve shows the relationship between the A) unemployment rate and the inflation rate. B) expected rate of inflation and the nominal interest rate. C) real interest rate and the unemployment rate. D) nominal interest rate and the real interest rate

A

3) Fiscal policy A) involves changing taxes and government spending. B) is enacted by the Federal Reserve. C) involves changing interest rates. D) involves changing the money supply.

A

8) Supply side economists focus policy change by lowering the : A) highest (i.e. marginal tax rates). B) average tax rates paid by most taxpayers. C) interest rates in the economy. D) lowest tax rates paid by the poor.

A

20) Which of the following statements about a cost-push inflation is correct? A) The United States has never experienced a cost-push inflation. B) Cost-push inflation starts when an increase in aggregate demand ʺpushesʺ costs higher. C) Cost-push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist. D) To persist, cost-push inflation needs a continual series of cost hikes with no change in aggregate demand.

C

21) A one-time increase in oil prices without any following change in aggregate demand produces A) demand-pull inflation. B) an increase in the money wage rate that exceeds the percentage increase in the price level. C) stagflation. D) a one-time fall in the price level.

C

10) An decrease in the input prices (such as the money wage) ceteris paribus: A) decreases the long-run aggregate supply. B) increases the long-run aggregate supply. C) decreases the short-run aggregate supply D) increases the short-run aggregate supply. E) increases aggregate demand.

D

17) Demand-pull inflation persists because of A) continuing increases in real wage rates. B) continuing increases in government expenditures. C) continuing increases in aggregate supply. D) continuing increases in the quantity of money.

D

18) In a demand-pull inflation, the AD ( steps A to B) curve shifts ________ and the SRAS curve shifts ________ (steps B to C). A) rightward; rightward B) left ward; left ward C) left ward; rightward D) rightward; left ward

D

19) An increase in the world price of oil will result in ________. A) cost-push inflation B) deflation C) demand-pull inflation D) stagflation

D

22) An increase in the quantity of money A) decreases the aggregate quantity demanded. B) decreases aggregate demand. C) increases the short-run aggregate supply. D) increases aggregate demand

D

23) An automatic stabilizer A) involves a change in personal tax rates. B) requires action by the Congress. C) involves a change in government purchases. D) is triggered by the state of the economy

D

6) The supply side school of thought proposed: A) cutting the size of government. B) cutting the (top) marginal tax rates. C) cutting government regulation. D) doing all of the above

D

7) One reason why many supply-side economists focus policy on lowering the top marginal tax rate is their belief that: A) it would bring about income equality throughout all taxpayers in the long-run. B) it benefits the most deserving decision makers. C) it is system most fair to the members of congress. D) it would have the greatest positive influence on the decision makers in the economy with the highest marginal product (i.e. most productive in the economy).

D