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In the extended AD-AS model, the long-run aggregate supply curve is vertical.

A) True
B) False

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In the long run, demand-pull inflation leads to


A) higher unemployment and a higher price level.
B) lower real wages and higher unemployment.
C) lower real output and no change in unemployment.
D) a higher price level and no change in real output.

E) B) and D)
F) C) and D)

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The policy implication of the long-run Phillips Curve is that, while stimulative policies may work to reduce unemployment in the short run, the only effect of such policies in the long run is to raise inflation.

A) True
B) False

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The Phillips Curve shows a positive relationship between the rate of inflation and the unemployment rate.

A) True
B) False

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What is the Laffer curve? Explain the relationship that is shown in the curve.

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The Laffer curve is a curve relating gov...

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Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift


A) the aggregate demand curve to the right.
B) the aggregate supply curve to the right.
C) both the aggregate supply curve and the aggregate demand curve to the right.
D) the aggregate supply curve to the right and the aggregate demand curve to the left.

E) A) and B)
F) B) and C)

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Refer to the graphs. Assume that the economy is initially at equilibrium where AD A D _ { 2 } and AS intersect In Graph 1, and also assume that the economy is initially at point C in Graph 2. If the government Implements a contractionary or restrictive policy, it would make the economy in graph 2 A) move from point C to point B. B) move from point C to point A. C) move from point C to point D. D) remain at point C. Refer to the graphs. Assume that the economy is initially at equilibrium where AD AD2A D _ { 2 } and AS intersect In Graph 1, and also assume that the economy is initially at point C in Graph 2. If the government Implements a contractionary or restrictive policy, it would make the economy in graph 2


A) move from point C to point B.
B) move from point C to point A.
C) move from point C to point D.
D) remain at point C.

E) A) and B)
F) A) and C)

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Refer to the graph. If the government wishes to collect tax revenues equal to R R _ { 2 } , supply-side Economists would strongly advise the government to set tax rates at A) T _ { 2 } \text { or } T _ { 3 } B) T _ { 2 } \text { only. } C) T _ { 4 } \text { only. } D) T _ { 2 } \text { or } T _ { 4 } Refer to the graph. If the government wishes to collect tax revenues equal to R R2R _ { 2 } , supply-side Economists would strongly advise the government to set tax rates at


A) T2 or T3T _ { 2 } \text { or } T _ { 3 }
B) T2 only. T _ { 2 } \text { only. }
C) T4 only. T _ { 4 } \text { only. }
D) T2 or T4T _ { 2 } \text { or } T _ { 4 }

E) A) and B)
F) C) and D)

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Refer to the diagram. The initial aggregate demand curve is AD<sub>1</sub>, and the initial aggregate supply curve is AS<sub>1</sub>. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a A) move from a to d along the long-run aggregate supply curve. B) rightward shift of the aggregate supply curve from A \mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 1 } C) move from a to c to d. D) leftward shift of the aggregate supply curve from A \mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 } Refer to the diagram. The initial aggregate demand curve is AD1, and the initial aggregate supply curve is AS1. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a


A) move from a to d along the long-run aggregate supply curve.
B) rightward shift of the aggregate supply curve from A AS2 to AS1\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 1 }
C) move from a to c to d.
D) leftward shift of the aggregate supply curve from A AS1 to AS2\mathrm { AS } _ { 1 } \text { to } \mathrm { AS } _ { 2 }

E) A) and C)
F) A) and B)

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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) the short-run aggregate supply curve is downsloping.

E) B) and C)
F) A) and D)

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The short run in macroeconomics is a period in which nominal wages remain fixed even as the general price level changes.

A) True
B) False

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In the short run, demand-pull inflation will drive up the price level and increase real output, but in the long run, only the price level will rise.

A) True
B) False

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The long-run Phillips Curve is essentially a horizontal line at the economy's natural rate of inflation.

A) True
B) False

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A) stay at point B _ { 2 } and remain there in the long run. B) move to point c _ { 2 } and in the long run move on to B _ { 3 } C) move to point B _ { 3 } and in the long run move on to C _ { 2 } D) move to point B _ { 1 } and in the long run move back to B _ { 2 }


A) stay at point B2B _ { 2 } and remain there in the long run.
B) move to point c2c _ { 2 } and in the long run move on to
B3B _ { 3 }
C) move to point B3B _ { 3 } and in the long run move on to
C2C _ { 2 }
D) move to point B1B _ { 1 } and in the long run move back to
B2B _ { 2 }

E) A) and D)
F) A) and C)

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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.

E) B) and D)
F) B) and C)

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The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand


A) influences real output and employment in the long run, but not in the short run.
B) influences real output and employment in the short run, but not in the long run.
C) does not influence the price level in the short run or the long run but only real output and employment.
D) does not influence real output and employment in the short run or the long run but only the price level.

E) A) and B)
F) A) and C)

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The misery index is a measure of national economic discomfort that adds together a nation's


A) saving and investment.
B) budget deficit and public debt.
C) unemployment rate and inflation rate.
D) level of taxation with the amount of government spending.

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

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Refer to the diagram. Point b would be explained by A) an actual rate of inflation that exceeds the expected rate. B) an actual rate of inflation that is less than the expected rate. C) cost-push inflation. D) an increase in long-run aggregate supply. Refer to the diagram. Point b would be explained by


A) an actual rate of inflation that exceeds the expected rate.
B) an actual rate of inflation that is less than the expected rate.
C) cost-push inflation.
D) an increase in long-run aggregate supply.

E) B) and D)
F) A) and D)

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In the long run, the economy will always move toward full employment.

A) True
B) False

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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.

E) C) and D)
F) A) and B)

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