question

The level of potential output and location of the long-run aggregate supply curve are determine by:

answer

the natural rate of unemployment

question

In the extended aggregate demand-aggregate supply model:

answer

the level of real output is the same in the long run regardless of the location of the aggregate demand curve

question

If the government uses fiscal policy to restrain cost-push inflation, we can expect:

answer

the unemployment rate to rise

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

The traditional Phillips Curve suggests a trade-off between:

answer

the level of unemployment and inflation

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

Stagflation refers to:

answer

an increase in inflation accompanied by decreases in real output and employment

question

Which of the following allegedly contributed to the stagflation in the mid-1970s?

answer

a dramatic increase in oil prices

question

An adverse aggregate supply shock:

answer

can cause stagflation

question

The last few years of the 1990s in the United States were characterized by:

answer

low inflation and low unemployment

question

Which of the following is a true statement?

answer

Under normal conditions, there is a short-run trade-off between inflation and unemployment, and there is no trade-off in the long run

question

The long-run Phillips Curve is:

answer

vertical

question

Which of the following is a tenet of supply-side economics?

answer

High marginal tax rates severely discourage work, saving, and investment

question

The Laffer Curve is a central concept in:

answer

supply-side economics

question

Supply-side economist Author Laffer has argued that:

answer

large reductions in personal and corporate income taxes will increase aggregate supply so much more than aggregate demand

question

A basic criticism of supply-side economics is that:

answer

lower taxes will increase aggregate demand so much more than they will increase aggregate supply

question

Critics of supply-side economics:

answer

contend that the relationship between tax rates and economic incentives is small and of uncertain direction

question

In 1993 the federal government boosted income tax rates. In the seven years that followed:

answer

tax revenues expanded rapidly

question

In 1993 the federal government boosted income tax rates. The change in tax revenue that occurred in the seven years that followed:

answer

contradicted the claims of supply-side economists and the Laffer Curve

question

The ideas of economist Arthur Laffer became the centerpiece for tax policy during the:

answer

Reagan administration

question

The mainstream view is that macro instability is caused by:

answer

significant changes in investment spending

question

Economist Milton Friedman is most closely associated with:

answer

monetarism

question

Monetarists believe that:

answer

velocity is relatively stable

question

According to monetarists:

answer

changes in the money supply are the primary cause of changes in the price level

question

Equation of exchange:

answer

MV=PQ

question

The velocity of money is the:

answer

number of times per year the average dollar is spent on final goods and services

question

At the equilibrium level of GDP:

answer

MV= nominal GDP

question

Monetarists believe the private economy is inherently:

answer

stable and that the government sector should be small

question

The real-business-cycle theory holds that business fluctuations are caused by:

answer

significant changes in technology and resource availability

question

Which of the following is not an aggregate-demand-side explanation of business cycles?

answer

the real-business-cycle theory

question

New classical economists:

answer

hold that, left alone, the economy gravitates to its full-employment level of output

question

Rational expectations theory is based on the assumption that:

answer

both product and resource markets are very competitive

question

Rational expectations theory implies that the:

answer

long-run aggregate supply curve is vertical

question

Mainstream economists question the new classical assumption that:

answer

wages and prices are equally flexible upward and downward

question

Adherents of the traditional monetary rule advocate that the:

answer

money supply should be increase by a constant rate year after year

question

Monetarists and rational expectations theorists generally agree that:

answer

the Federal Reserve should adhere to a monetary rule

question

The crowding-out effect refers to the possibility that:

answer

deficit financing will increase the interest rate and reduce investment

question

The theory of rational expectations concludes that:

answer

by reacting in its self-interest to the expected effects of stabilization policy, the public tends to negate the impact of those policies

macro test 3 policy debate – Flashcards

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