ECO2013 CHAPTER 35 – Flashcards
Unlock all answers in this set
Unlock answersquestion
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:
answer
long-run
question
In terms of aggregate supply, the difference between the long run and the short run is that in the long run:
answer
nominal wages and other input prices are fully responsive to price-level changes.
question
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:
answer
move the economy from b to d.
question
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:
answer
a move from b to c on AS2.
question
Refer to the above diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as:
answer
a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2.
question
If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:
answer
an inflationary spiral is likely to occur.
question
Refer to the above graphs. Growth of production capacity is shown by:
answer
both the shift from AB to CD and the shift from X to Y.
question
The basic problem portrayed by the traditional Phillips Curve is:
answer
that a level of aggregate demand sufficiently high to result in full employment may also cause inflation.
question
Refer to the above diagram for a specific economy. Which of the following best describes the relationship shown by this curve?
answer
The rate of inflation and the rate of unemployment are inversely related.
question
Rightward and upward shifts of the Phillips Curve in the 1970s and early 1980s were caused by:
answer
adverse shocks to aggregate supply.
question
Which of the following is a true statement?
answer
There is no tradeoff between inflation and unemployment in the long run.
question
As distinct from reductions in the price level, reductions in the rate of inflation are referred to as:
answer
disinflation.
question
Refer to the above diagram. Point b would be explained by:
answer
an actual rate of inflation that exceeds the expected rate.
question
The above curve is known as the:
answer
Laffer Curve.
question
A basic criticism of supply-side economics is that:
answer
lower taxes will increase aggregate demand much more than they will increase aggregate supply.
question
The long-run aggregate supply curve is vertical:
answer
because resource prices eventually rise and fall with product prices.
question
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:
answer
is a vertical line extending from Qf upward through e, b, and d.
question
One policy dilemma posed by cost-push inflation is that:
answer
the reduction of aggregate demand to restrain inflation will cause a further reduction in the real GDP.
question
Refer to the above graphs. An increase in an economy's labor productivity would shift curve:
answer
AB to CD and shift curve X to Y.
question
The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:
answer
deflation may result.
question
Refer to the above diagram for a specific economy. The curve on this graph is known as a:
answer
Phillips Curve.
question
An adverse aggregate supply shock:
answer
can cause stagflation.
question
Which of the following is a true statement?
answer
The long-run Phillips Curve is vertical.
question
Refer to the above diagram. Point b would not be permanent because the:
answer
short-run Phillips Curve would shift from PC1 to PC2 and unemployment would increase to the natural rate at c.
question
In the above curve, a decline in the tax rate from c to b would:
answer
increase tax revenue.
question
Supply-side economist Arthur Laffer has argued that:
answer
large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.