Econ 2 Test 16-19

In terms of aggregate supply, the difference between the long run and the short run is that in the long run: A) the price level is variable. B) employment is variable. C) real output is variable. D) nominal wages and other input prices are fully responsive to price-level changes.

D

In terms of aggregate supply, the short run is a period in which: A) thepricelevelisconstant. B) employment is constant. C) real output is constant. D) nominalwagesandotherresourcepricesareunresponsivetoprice-levelchanges.

D

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.

D

In the extended analysis of aggregate supply, the long-run aggregate supply curve is: A) vertical and the short-run aggregate supply curve is horizontal. B) horizontal and the short-run aggregate supply curve is vertical. C) horizontal and the short-run aggregate supply curve is upward sloping. D) vertical and the short-run aggregate supply curve is upward sloping.

D

The Laffer Curve is a central concept in: A) monetarism. B) Keynesianism. C) welfare economics. D) supply-side economics.

D

Which of the following is a true statement? A) The short-run Phillips Curve is horizontal. B) The long-run Phillips Curve is horizontal. C) There is a long-run tradeoff between inflation and unemployment. D) The short-run Phillips Curve is downward sloping.

D

Which of the following is a true statement? A) There is a long-run tradeoff between inflation and unemployment. B) The short-run Phillips Curve is vertical. C) The long-run Phillips Curve is horizontal. D) Adverse aggregate supply shocks can simultaneously worsen unemployment and inflation.

D

Which of the following is a true statement? A) There is a long-run tradeoff between inflation and unemployment. B) There is no tradeoff between inflation and unemployment in the short-run. C) The short-run Phillips Curve is horizontal. D) The long-run Phillips Curve is vertical.

D

Economist Arthur Laffer equated Robin Hood to: A) government and equated the people passing through Sherwood Forest to taxpayers. B) charitable organizations and equated the people passing through Sherwood Forest to poor people. C) businesses and equated the people passing through Sherwood Forest to consumers. D) government and equated the people passing through Sherwood Forest to importers of goods and services.

A

If government uses fiscal policy to restrain cost-push inflation, we can expect: A) the unemployment rate to rise. B) the unemployment rate to fall. C) the aggregate demand curve to shift rightward. D) tax-ratedeclinesandincreasesingovernmentspending

A

In recent years: A) significant changes in the price of oil have had much less effect on the U. S. economy than did similar changes in oil prices in previous decades. B) large increases in the price of oil have reduced U. S. aggregate supply and caused cost-push inflation. C) large decreases in the price of oil have increased U. S. aggregate supply and caused deflation. D) theUnitedStateshasbecomeanetexporterofoil.

A

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: A) long run. B) short run. C) immediate market period. D) very long run.

A

Rightward and upward shifts of the Phillips Curve in the 1970s and early 1980s were caused by: A) adverse shocks to aggregate supply. C) an increase in the misery index. B) adverse shocks to aggregate demand. D) the Vietnam War.

A

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? A) The United States is now more reliant on domestic oil and less reliant on imported oil. B) The amount of energy consumed in producing each dollar of GDP has greatly declined. C) The United States has vastly expanded its hydroelectric capacity (dams and reservoirs). D) TheUnitedStateshasgreatlyexpandeditspassengertrainservices.

B

Which of the following is a true statement? A) There is a long-run tradeoff between inflation and unemployment. B) There is no tradeoff between inflation and unemployment in the long run. C) The short-run Phillips Curve is horizontal. D) Thelong-runPhillipsCurveishorizontal.

B

Inflation accompanied by falling real output and employment is known as: A) Laffer's law. B) Okun's law. C) stagflation. D) the Phillips Curve.

C

When the actual rate of inflation is less than the expected rate: 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.

A

Which of the following is a tenet of supply-side economics? A) High marginal tax rates severely discourage work, saving, and investment. B) Increases in social security taxes and other business taxes shift the aggregate supply curve to the right. C) The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate. D) Transferpaymentsincreaseincentivestowork.

A

Critics of supply-side economics: A) argue that a tax cut will increase aggregate supply by more than it increases aggregate demand. B) contend that the relationship between tax rates and economic incentives is small and of uncertain direction. C) believe that a decline in tax rates will increase tax revenues. D) point out that tax cuts enable households to "buy more leisure" by working less.

B

Government can push the unemployment rate below the natural rate only by: A) instituting supply-side economic policies. B) producing a higher rate of inflation than people expect. C) balancing the federal budget. D) achievingzeroinflation.

B

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

B

In terms of aggregate supply, a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the: A) long run. B) short run. C) immediate market period. D) very long run.

B

In the long run: A) attempts to "fine tune" the economy cause the rate of unemployment to accelerate. B) there is no long-run inflation-unemployment tradeoff. C) there is an inflation-unemployment tradeoff and the terms of that tradeoff have worsened in recent years. D) there is an inflation-unemployment tradeoff, but the terms of that trade off have improved in recent years.

B

Statistical data for the 1970s and 1980s suggest that: A) the Phillips Curve was stable. B) the Phillips Curve was unstable. C) low levels of unemployment were consistently associated with high rates of inflation. D) theinflationratewashighlystable.

B

Supply-side economist Arthur Laffer has argued that: A) there is no empirically proven relationship between tax rates and incentives. B) large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand. C) the only way to eliminate inflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations. D) large cuts in income taxes will increase aggregate demand more than aggregate supply.

B

The long-run aggregate supply curve is vertical: A) because the rate of inflation is steady in the long run. B) because resource prices eventually rise and fall with product prices. C) because product prices always increase at a faster rate than resource prices. D) only when the money supply increases at the same rateas real GDP.

B

The short-run aggregate supply curve is upsloping because: A) of the interestrate effect. B) higher price levels create incentives to expand output when resource prices are unresponsive to price- level changes. C) of the net export effect. D) higher price levels create an expectation among producers of still higher price levels.

B

The traditional Phillips Curve suggests a tradeoff between: A) price level stability and income equality. B) the level of unemployment and price level stability. C) unemployment and income equality. D) economicgrowthandfullemployment.

B

When the actual rate of inflation exceeds the expected rate: 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) nominalwageswilldecline.

B

Other things equal, an increase in the price level will: A) shift the aggregate supply curve to the right. B) shift the aggregate demand curve to the right. C) cause a movement up along a short-run aggregate supply curve. D) cause a movement down an aggregate demand curve.

C

Other things equal, the short-run aggregate supply curve shifts positions when: A) the price level changes. B) the rate of inflation changes. C) nominal wages and other input prices change. D) aggregate demand changes.

C

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: A) accelerating inflation. B) deflation. C) disinflation. D) a constant rate of inflation.

C

The last few years of the 1990s in the United States were characterized by A) low inflation and high unemployment. B) stagflation. C) low inflation and low unemployment. D) a high misery index.

C

The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment: A) unemployment may actually increase because of the crowding-out effect. B) tax revenues may increase even though tax rates have been reduced. C) inflation may result. D) the natural rate of unemployment may fall.

C

The: A) short-run aggregate supply curve is downward sloping. B) short-run aggregate supply curve is vertical. C) long-run aggregate supply curve is vertical. D) long-runaggregatesupplycurveisupsloping.

C

Which of the following allegedly contributed to the stagflation in the mid-1970s? A) appreciation of the dollar B) a sharp drop in the prices of farm products C) a dramatic increase in oil prices D) rising productivity in manufacturing.

C

The extended AD-AS model: A) distinguishes between short-run and long-run aggregate demand. B) explains inflation but not recession. C) includes G and Xn whereas the simple AD-AD model does not. D) distinguishes between short-run and long-run aggregate supply.

D

Relative to previous decades, the U.S. economy is less affected by changes in the price of oil partly because: A) the composition of GDP has changed from larger, heavier items such as earth movers and steel products toward smaller, lighter items such as software and microchips. B) The United States is now more reliant on domestic oil and less reliant on imported oil. C) The United States has vastly expanded its hydroelectric capacity (dams and reservoirs). D) The ratio of passenger cars to passenger trucks has increased.

A

Stagflation refers to: A) an increase in inflation accompanied by decreases in real output and employment. B) a decline in the price level accompanied by increases in real output and employment. C) a simultaneous increase in real output and the price level. D) a simultaneous reduction in real output and the price level.

A

The basic problem portrayed by the traditional Phillips Curve is: 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.

A

The last few years of the 1990s in the United States were characterized by: A) Under normal conditions there is a short-run tradeoff between inflation and unemployment. B) There is a long-run tradeoff between inflation and unemployment. C) The short-run Phillips Curve is vertical. D) The long-run Phillips Curve is horizontal.

A

A major adverse aggregate supply shock: A) automatically shifts the aggregate demand curve rightward. B) causes the Phillips Curve to shift rightward and upward. C) can be caused by rising productivity. D) can be caused by falling wages.

B

A rightward shift of the traditional Phillips Curve would suggest that: A) the productivity of labor increased. B) the rate of inflation is now higher at each rate of unemployment. C) cost-push inflation decreased. D) the rate of inflation is now lower at each rate of unemployment.

B

An adverse aggregate supply shock could result from: A) a sharp rise in productivity. C) a decline in wages. B) a rapid rise in oil prices. D) an appreciation of the dollar.

B

A basic criticism of supply-side economics is that: A) empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates. B) lower taxes will increase aggregate supply much more than they will increase aggregate demand. C) lower taxes will increase aggregate demand much more than they will increase aggregate supply. D) higher taxes will reduce incentives to work, invest, and innovate.

C

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 level of real output is the same in the long run regardless of the location of the aggregate demand curve. D) theshort-runaggregatesupplycurveisdownsloping.

C

In the extended analysis of aggregate supply, the short-run aggregate supply curve is: A) vertical and the long-run aggregate supply curve is horizontal. B) horizontal and the long-run aggregate supply curve is vertical. C) upward sloping and the long-run aggregate supply curve is vertical. D) horizonta land the long-run aggregate supply curve is upward sloping.

C

One policy dilemma posed by cost-push inflation is that: A) an increase in aggregate demand will increase inflation and the unemployment rate simultaneously. B) tax rates can be reduced without lowering tax revenues. C) the reduction of aggregate demand to restrain inflation will cause a further reduction in the real GDP. D) the adjustment of aggregate demand can neither increase real GDP nor reduce inflation.

C

An adverse aggregate supply shock: A) automatically shifts the aggregate demand curve rightward. B) causes the Phillips Curve to shift leftward and downward. C) can be caused by a boost in the rate of growth of productivity. D) can cause stagflation.

D

As distinct from reductions in the price level, reductions in the rate of inflation are referred to as: A) dollar depreciation. B) stagflation. C) deflation. D) disinflation.

D

Disinflation occurs when: A) the price level is falling. B) investment plans exceed saving. C) a speculative investment "bubble" is bursting. D) the inflation rate is declining.

D

In the last half of the 1990s, the usual short-run tradeoff between inflation and unemployment did not arise because: A) the Fed held interest rates constant. B) the Federal government balanced its budget. C) the U.S. personal savings rate rose. D) productivity (and thus aggregate supply) grew faster than previously.

D

Other things equal, a decrease in the price level will: A) shift the aggregate supply curve to the left. B) shift the aggregate demand curve to the left. C) cause a movement up a short-run aggregate supply curve. D) cause a movement down an aggregate supply curve.

D

The ideas of economist Arthur Laffer became the centerpiece for tax policy during the: A) Ford administration. C) Nixon administration. B) Clinton administration. D) Reagan administration.

D