Question 1

Refer to the graph below.The economy is initially at equilibrium when AD1 and AS1 intersect.If there is cost-push inflation in the economy so that aggregate supply shifts from AS1 to AS2,then to reduce unemployment the government may increase aggregate demand which in the short run shifts: 1 and AS1 intersect.If there is cost-push inflation in the economy so that aggregate supply shifts from AS1 to AS2,then to reduce unemployment the government may increase aggregate demand which in the short run shifts:   A)  AD1 to AD2,increases the price level from P1 to P2,and increases real domestic output from Q1 to Q2. B)  AD1 to AD2,increases the price level from P2 to P3,and increases real domestic output from Q1 to Q2. C)  AD1 to AD2,increases the price level from P2 to P3,and increases real domestic output from Q2 to Q1. D)  AD2 to AD1,decreases the price level from P3 to P2,and decreases real domestic output from Q1 to Q2." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   AD1 to AD2,increases the price level from P1 to P2,and increases real domestic output from Q1 to Q2.
B)   AD1 to AD2,increases the price level from P2 to P3,and increases real domestic output from Q1 to Q2.
C)   AD1 to AD2,increases the price level from P2 to P3,and increases real domestic output from Q2 to Q1.
D)   AD2 to AD1,decreases the price level from P3 to P2,and decreases real domestic output from Q1 to Q2.E) B) and C)
F) A) and D)

Question 2

Although the increase in long-run aggregate supply (other things equal) ,would expand real GDP and lower the price level,the declines in the price level has not been part of Canada's growth experience.This is because:

Accepted Answer

A)   the Bank of Canada has taken no action to change the nation's money supply.
B)   the Bank of Canada has increased the money supply much less than the increase in aggregate supply.
C)   the increase in the money supply by Bank of Canada has matched the increase in aggregate supply.
D)   the Bank of Canada usually engineers inflationary rightward shifts of the aggregate demand curve that are faster than the deflationary rightward shifts of the aggregate supply curve.E) B) and C)
F) None of the above

Question 3

Which of the following most significantly contributed to the 1970s and early 1980s' stagflation?

Accepted Answer

A)   appreciation of the dollar
B)   a sharp drop in the prices of farm products
C)   a dramatic increase in energy prices
D)   rising productivity in manufacturingE) A) and B)
F) C) and D)

Question 4

Which of the following is not a principle of supply-side economics?

Accepted Answer

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 leftward.
C)   The Bank of Canada should adhere to a monetary rule which limits increases in the money supply to a fixed annual rate.
D)   Transfer payments reduce incentives to work.E) A) and C)
F) B) and C)

Question 5

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

Accepted Answer

A)   the price level is variable.
B)   employment is variable.
C)   real output is variable.
D)   nominal wages and other input prices are variable.E) A) and B)
F) A) and D)

Question 6

Refer to the graph below.The effects of stagflation,in the short run,are best represented by a shift from: 1 to AD2 given a stable AS1 curve,an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2. B)  AD2 to AD1 given a stable AS1 curve,an increase in the price level from P1 to P2,and a fall in output from Q1 to Q2. C)  AS1 to AS2 given a stable AD1 curve,an increase in the price level from P1 to P2,and a fall in output from Q1 to Q2. D)  AS2 to AS1 given a stable AD1 curve,an increase in the price level from P1 to P2,and a fall in output from Q1 to Q2." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   AD1 to AD2 given a stable AS1 curve,an increase in the price level from P1 to P2, and a fall in output from Q1 to Q2.
B)   AD2 to AD1 given a stable AS1 curve,an increase in the price level from P1 to P2,and a fall in output from Q1 to Q2.
C)   AS1 to AS2 given a stable AD1 curve,an increase in the price level from P1 to P2,and a fall in output from Q1 to Q2.
D)   AS2 to AS1 given a stable AD1 curve,an increase in the price level from P1 to P2,and a fall in output from Q1 to Q2.E) B) and C)
F) A) and B)

Question 7

Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates,but they do not think that there is such a tradeoff in the long run.

Accepted Answer

A) True 
 B)False

Question 8

A major adverse aggregate supply shock:

Accepted Answer

A)   automatically shifts the aggregate demand curve rightward.
B)   causes the Phillips Curve to shift outward.
C)   can be caused by rising productivity.
D)   can be caused by falling wages.E) B) and C)
F) A) and B)

Question 9

The long-run Phillips Curve is vertical at:

Accepted Answer

A)   price level.
B)   the natural rate of unemployment.
C)   every level of real GDP.
D)   the rate of maximum taxation.E) A) and B)
F) A) and C)

Question 10

If the government attempts to maintain full employment under conditions of cost-push inflation,deflation is likely to occur.

Accepted Answer

A) True 
 B)False

Question 11

1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a: A)  leftward shift of the aggregate supply curve from AS1 to AS2. B)  rightward shift of the aggregate demand curve from AD1 to AD2. C)  move from d to b to a. D)  move from d directly to a." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a:

Accepted Answer

A)   leftward shift of the aggregate supply curve from AS1 to AS2.
B)   rightward shift of the aggregate demand curve from AD1 to AD2.
C)   move from d to b to a.
D)   move from d directly to a.E) None of the above
F) B) and C)

Question 12

In the long run,demand-pull inflation:

Accepted Answer

A)   increases unemployment.
B)   decreases nominal wages.
C)   decreases real output.
D)   increases the price level.E) C) and D)
F) A) and D)

Question 13

More inflation is likely to result when the government enacts policies to maintain full employment when there is cost-push inflation.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

In the long-run,any inflation that occurs in the economy is the result of:

Accepted Answer

A)   the reduction in the rate of increase in money supply.
B)   the growth of aggregate supply.
C)   the growth of aggregate demand.
D)   the growth of real GDP.E) All of the above
F) B) and C)

Question 16

In the conventional view,outward shifts of the Phillips Curve in the 1970s and early 1980s were caused by:

Accepted Answer

A)   adverse shocks to aggregate supply.
B)   adverse shocks to aggregate demand.
C)   an increase in the misery index.
D)   the Vietnam War.E) A) and D)
F) C) and D)

Question 17

1.According to the adaptive expectations theorists,the long-run relationship between the unemployment rate and the rate of inflation is represented by: A)  the line connecting B1 and C1. B)  the line through B1,B2,B3,and B4. C)  the line connecting C1 and B2. D)  any line parallel to the horizontal axis." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram and assume the economy is initially at point b1.According to the adaptive expectations theorists,the long-run relationship between the unemployment rate and the rate of inflation is represented by:

Accepted Answer

A)   the line connecting B1 and C1.
B)   the line through B1,B2,B3,and B4.
C)   the line connecting C1 and B2.
D)   any line parallel to the horizontal axis.E) A) and B)
F) A) and C)

Question 18

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 19

The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

Accepted Answer

A) True 
 B)False

Question 20

The economy enters the long run once:

Accepted Answer

A)   nominal wages become real wages.
B)   real wages become nominal wages.
C)   input prices start to change from being inflexible to fully flexible.
D)   sufficient time has elapsed for real GDP to increase and unemployment to decrease.E) A) and B)
F) A) and D)

Exam 16: Long-Run Macroeconomic Adjustments

In the conventional view,outward shifts of the Phillips Curve in the 1970s and early 1980s were caused by:

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

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The Laffer Curve suggests that lower tax rates will decrease saving and increase consumption.

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In the long-run,any inflation that occurs in the economy is the result of:

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The long-run aggregate supply curve is vertical.

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In the long run,demand-pull inflation:

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Which of the following is not a principle of supply-side economics?

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Refer to the graph below.The economy is initially at equilibrium when AD1 and AS1 intersect.If there is cost-push inflation in the economy so that aggregate supply shifts from AS1 to AS2,then to reduce unemployment the government may increase aggregate demand which in the short run shifts:

Correct AnswerverifiedShow Answer

-Refer to the above diagram and assume the economy is initially at point b1.According to the adaptive expectations theorists,the long-run relationship between the unemployment rate and the rate of inflation is represented by:

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Many economists accept the idea of a short-run tradeoff between the unemployment and inflation rates,but they do not think that there is such a tradeoff in the long run.

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Although the increase in long-run aggregate supply (other things equal) ,would expand real GDP and lower the price level,the declines in the price level has not been part of Canada's growth experience.This is because:

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The long-run Phillips Curve is vertical at:

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Refer to the graph below.The effects of stagflation,in the short run,are best represented by a shift from:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following most significantly contributed to the 1970s and early 1980s' stagflation?

Correct AnswerverifiedShow Answer

If the government attempts to maintain full employment under conditions of cost-push inflation,deflation is likely to occur.

Correct AnswerverifiedShow Answer

A major adverse aggregate supply shock:

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-Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.Cost-push inflation in the short run is best represented as a:

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The economy enters the long run once:

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More inflation is likely to result when the government enacts policies to maintain full employment when there is cost-push inflation.

Correct AnswerverifiedShow Answer

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Refer to the graph below.The economy is initially at equilibrium when AD₁ and AS₁ intersect.If there is cost-push inflation in the economy so that aggregate supply shifts from AS₁ to AS₂,then to reduce unemployment the government may increase aggregate demand which in the short run shifts:

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-Refer to the above diagram and assume the economy is initially at point b₁.According to the adaptive expectations theorists,the long-run relationship between the unemployment rate and the rate of inflation is represented by:

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-Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.Cost-push inflation in the short run is best represented as a:

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