Macroeconomics Chapter 18 – Flashcards
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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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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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Other things equal, a decrease in the price level will:
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cause a movement down an aggregate supply curve.
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Refer to the 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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Other things equal, the short-run aggregate supply curve shifts positions when:
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nominal wages and other input prices change.
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Refer to the diagram relating to short-run and long-run aggregate supply. The:
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short-run aggregate supply curve is B.
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Refer to the diagram. The long-run aggregate supply curve is:
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A.
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Refer to the diagram. If drawn, the long-run aggregate supply curve would include points:
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y, w, and u.
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Which of the following is a true statement? A. Under normal conditions, there is a short-run trade-off between inflation and unemployment. B. There is a long-run trade-off between inflation and unemployment. C. The short-run Phillips Curve is vertical. D. The long-run Phillips Curve is horizontal.
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A. Under normal conditions, there is a short-run trade-off between inflation and unemployment.
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Which of the following is a true statement? A. There is a long-run trade-off between inflation and unemployment. B. There is no trade-off between inflation and unemployment in the long run. C. The short-run Phillips Curve is horizontal. D. The long-run Phillips Curve is horizontal.
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B. There is no trade-off between inflation and unemployment in the long run.
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Which of the following is a true statement? A. There is a long-run trade-off between inflation and unemployment. B. There is no trade-off between inflation and unemployment in the short-run. C. The short-run Phillips Curve is horizontal. D. The long-run Phillips Curve is vertical.
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D. The long-run Phillips Curve is vertical.
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In the last half of the 1990s, the usual short-run trade-off between inflation and unemployment did not arise because:
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productivity (and thus aggregate supply) grew faster than previously.
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Suppose that the Consumer Price Index for a particular economy rose from 110 to 120 in year 1, 120 to 130 in year 2, and 130 to 140 in year 3. We could conclude that this economy is experiencing:
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disinflation.
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Disinflation occurs when:
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the inflation rate is declining.
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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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When the actual rate of inflation is less than the expected rate:
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the unemployment rate will temporarily rise.
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When the actual rate of inflation exceeds the expected rate:
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firms will experience rising profits and thus increase their employment.
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The diagram is the basis for explaining:
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the long-run Phillips Curve.
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Refer to the diagram. The natural rate of unemployment for this economy is:
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5 percent.
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Refer to the diagram and assume the economy is initially at point b1. Which of the following movements is consistent with the traditional Phillips Curve?
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The movement from b1 to c1.
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Refer to the diagram and assume the economy is initially at point b1. Point c1 represents:
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an unstable situation because nominal wage rates will increase.
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Refer to the diagram and assume the economy is initially at point b1. The long-run relationship between the unemployment rate and the rate of inflation is represented by:
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the line through b1, b2, b3, and b4.
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Government can push the unemployment rate below the natural rate only by:
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producing a higher rate of inflation than people expect.
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In the long run:
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there is no inflation-unemployment trade-off.
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In the diagram:
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any rate of inflation is consistent with the natural rate of unemployment in the long run.
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Refer to the diagram. Point b on short-run Phillips Curve PC1 represents a rate of:
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unemployment below the natural rate.
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Refer to the 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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Refer to the diagram. The move of the economy from c to e on short-run Phillips Curve PC2 would be explained by an:
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actual rate of inflation that is less than the expected rate.
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The Laffer Curve is a central concept in:
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supply-side economics.
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The given curve is known as the:
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Laffer Curve.
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Refer to the diagram. Supply-side economists believe that tax rates are typically:
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at some level above b.
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Refer to the diagram. The general agreement of most economists is that the U.S. economy today is:
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at some level below b.
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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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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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Critics of supply-side economics:
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contend that the relationship between tax rates and economic incentives is small and of uncertain direction.
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Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate:
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lowering tax rates to 40 percent.
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In 1993 the federal government boosted income tax rates. The change in tax revenue that occurred in the seven years that followed:
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contradicted the claims of supply-side economists and the Laffer Curve.
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(Consider This) The ideas of economist Arthur Laffer became the centerpiece for tax policy during the:
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Reagan administration.
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(Consider This) Economist Arthur Laffer equated Robin Hood to:
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government and equated the people passing through Sherwood Forest to taxpayers.
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(Last Word) According to the research of Christina Romer and David Romer:
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a tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.
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