ECO2013 CHAPTER 35 – Flashcards

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