chapter 16 macro

In the last half of the 1990s, the usual short-run tradeoff between inflation and unemployment did not arise because:

productivity (and thus aggregate supply) grew faster than previously.

Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full employment level of output Qf. In the short-run, demand-pull inflation could best be shown as:

s move from b to c on AS2

Inflation accompanied by falling real output and employment is known as:

stagflation.

refer to the above diagram. The move of the economy from c to e on short-run philips curve PC2 would be explained by an

actual rate of inflation that is less than the expected rate

A basic criticism of supply-side economics is that:

lower taxes will increase aggregate demand much more than they will increase aggregate supply.

Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full employment level of output Qf. In terms of this diagram, in the short run cost push inflation could best be shown as:

A leftward shift of aggregate supply from AS2 to AS3

Which of the following is a true statement? 2

There is no tradeoff between inflation and unemployment in the long-run

Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and the economy initially is operating at its full employment level of output Qf. In the short run, an increase in the price level from P2 to P3 will:

increase real output from Qf to Q2

Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full employment level of output Qf. In terms of this diagram, the long-run aggregate supply curve:

is a vertical line extending from Qf upward through e, b, and d

Supply-side economist Arthur Laffer has argued that:

large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.

In the extended aggregate demand-aggregate supply model:

long-run equilibrium occurs at the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long run aggregate supply.

which of the following is a tenet of supply-side economics

High marginal tax rates severely discourage work, saving, and investment.

Which of the following is a reason why changes in the price of imported oil have less of an effect on the U. S. economy than in the 1970s and early 1980s?

The amount of energy consumed in producing each dollar of GDP has greatly declined.

Which of the following allegedly contributed to the stagflation in the mid-1970s?

a dramatic increase in oil prices

Stagflation refers to:

an increase in inflation accompanied by decreases in real output and employment.

Suppose that the CPI for a particular economy rose from 110 to 120 in year 1, 120 to 130 in year 2, and 130 to 140 in year 3. We could conclude that this economy is experiencing:

disinflation

in the extended analysis of aggregate supply, curve is

horizontal and the short-run aggregate supply curve is upward sloping

Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full employment level of output Qf. In the long run, an increase in the price level from P2 to P3 will:

move the economy from b to d

Other things equal, the short-run aggregate supply curve shifts positions when:

nominal wages and other input prices

In terms of aggregate supply, the difference between the long run and the short run is that in the long run:

nominal wages and other input prices are fully responsive to price level changes

refer tp the above diagram for a specific economy. Which of the following best describes a decision by policy makers that moves this economy from point a to point b

policymakers have instituted an easy money and/or a budgetary deficit thereby accepting a higher rate of inflation to reduce unemployment

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

short run

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

stagflation is likely to occur.

The basic problem portrayed by the traditional Phillips Curve is:

that a level of aggregate demand sufficiently high to result in full employment may also cause inflation.

In the extended aggregate demand-aggregate supply model: 2

the level of real output is the same in the long run regardless of the location of the aggregate demand curve.

A rightward shift of the traditional Phillips Curve would suggest that:

the rate of inflation is now higher at each rate of unemployment.

One policy dilemma posed by cost-push inflation is that:

the reduction of aggregate demand to restrain inflation will cause a further reduction in the real GDP.

in the long run

there is no long-run inflation-unemployment tradeoff.

Which of the following is a true statement?

under normal conditions there is a short-run tradeoff between inflation and unemployment

refer to the above diagram. point b on short-run Philips curve PC1 represents the rate of

unemployment below the natural rate