978-1259723223 Test Bank TBChap038 Part 8

227.

Refer to the Laffer Curve. An increase in the tax rate from T3 to T4 would

228.

Refer to the Laffer Curve. An increase in the tax rate from T2 to T3 would

229.

Most economists think that

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Access i b i lity: Keyboard Navigation

Blooms: Understand

Difficu l t y : 02 Medium

Learning Objective: 38-05 Explain the relationship between tax rates, tax revenues, and

aggregate supply.

Test Bank: II

Topic: Taxation and Aggregate Supply

230.

A senator states, “We need to cut taxes in order to increase incentives to work and

produce, so that we can pull the nation out of this

economic slump.” A mainstream

economist who is a critic of this policy would likely reply that

231.

From the perspective of supply-side economists, a cut in tax rates will

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232.

One significant criticism of the major proposition of supply-side economics during the

period 1980–1988 was that

233.

Refer to the graph. If the economy is in initial equilibrium at AD1 and AS1, then, from a

strict supply-side perspective, a cut in taxes or

tax rates would produce an equilibrium

price and quantity of

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A.

P1 and Q1.

B.

P2 and Q2.

C.

P3 and Q3.

D. P4 and Q4.

234.

Refer to the graph. If the economy is initially at equilibrium at the intersection of AD1 and

AS1 and there is a tax cut, then, from a

skeptical mainstream perspective, the immediate

impact is that aggregate

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AACSB: Knowledge Application

Blooms: Understand

Difficu l t y : 02 Medium

Learning Objective: 38-05 Explain the relationship between tax rates, tax revenues, and

aggregate supply.

Test Bank: II

Topic: Taxation and Aggregate Supply

Type: Graph

235.

One criticism against supply-side cuts in marginal tax rates is that they fail to

236.

Which presidential administration is most closely associated with the economic

policies of supply-side economics?

237.

The idea that reductions in tax rates will increase tax revenue is illustrated by the

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A.

Laffer Curve.

B.

short-run Phillips Curve.

C.

long-run Phillips Curve.

D.

aggregate supply curve.

238.

To convey the point about supply-side economics, economist Arthur Laffer likened

taxpayers to

239.

Economist Arthur Laffer argued that Robin Hood and his men would

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written consent of McGraw-Hill Education.

Blooms: Understand

Difficu l t y : 02 Medium

Learning Objective: 38-05 Explain the relationship between tax rates, tax revenues, and

aggregate supply.

Test Bank: II

Topic: Taxation and Aggregate Supply

240.

The Romer and Romer 2010 paper in the American Economic Review identified the

major motivations for most significant legislated tax

changes to be the following, except

241.

The Romer and Romer 2010 paper in the American Economic Review found that tax

changes that are made to promote long–run growth or

to reduce an inherited budget deficit

tend to result in

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True / False Questions

242.

The short run in macroeconomics is a period in which nominal wages remain fixed

even as the general price level changes.

243.

In the short run, output increases in response to a rising price level, but not in the long

run.

244.

The long run aggregate supply curve is upward-sloping because real wages eventually

change by the same amount as changes in the price

level.

245.

In the long run, the economy will always move toward full employment.

246.

In the short run, demand-pull inflation will drive up the price level and increase real

output, but in the long run, only the price level will

rise.

247.

Demand-pull inflation and cost-push inflation have similar effects on real output in the

short run.

248.

According to the simple extended AD–AS model, cost-push inflation does not last in the

long run if the government leaves the economy

alone.

249.

According to the simple extended AD–AS model, demand-pull inflation and cost-push

inflation have the same effect on output in the long

run.

250.

When the economy is experiencing cost-push inflation, an inflationary spiral is likely to

result when the government adopts a hands-off

policy.

251.

If the government adopts a hands–off policy toward inflation, then the long run effects

of cost-push inflation and demand-pull inflation are

identical.

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Access i b i lity: Keyboard Navigation

Blooms: Understand

Difficu l t y : 02 Medium

Learning Objective: 38-02 Discuss how to apply the “extended” (short-run/long-run) AD–AS

model to inflation, recessions, and economic growth.

Test Bank: II

Topic: Applying the Extended AD–AS Model

252.

If wages and other input prices are inflexible, then the economy will not automatically

adjust to full employment in the long run.

253.

According to the simple extended AD–AS model, if the economy is in a recession,

prices and nominal wages will eventually fall and the

short-run aggregate supply curve will

increase, so that real output returns to its full-employment level in the long run.

254.

According to the simple extended AD–AS model, aggregate demand is a major

determinant of the level of output in the long run.

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written consent of McGraw-Hill Education.

Blooms: Understand

Difficu l t y : 02 Medium

Learning Objective: 38-02 Discuss how to apply the “extended” (short-run/long-run) AD–AS

model to inflation, recessions, and economic growth.

Test Bank: II

Topic: Applying the Extended AD–AS Model

255.

The long-run aggregate supply curve stays in a fixed position over time.

256.

The Phillips Curve shows a positive relationship between the rate of inflation and the

unemployment rate.

257.

A rightward shift of the Phillips Curve suggests that a lower rate of unemployment is

associated with each inflation rate.

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(the Phillips Curve).

Test Bank: II

Topic: The Inflation-Unemployment Relationship

258.

In the context of the Phillips curve, stagflation can only be understood as a rightward

shift of the curve.

259.

A stable Phillips curve does not allow for the possibility of stagflation.

260.

The implication of the long-run Phillips Curve is that there is no trade-off between

inflation and unemployment in the long–run.

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261.

The long-run Phillips Curve is essentially a horizontal line at the economy‘s natural rate

of inflation.

262.

The policy implication of the long-run Phillips Curve is that, while stimulative policies

may work to reduce unemployment in the short

run, the only effect of such policies in the

long run is to raise inflation.

263.

Based on the long-run Phillips Curve, any rate of inflation is compatible in the long run

with the natural rate of unemployment.

264.

The adjustment mechanism that brings the economy to its long-run aggregate supply has

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to do with inflation expectations, whereas the

adjustment to the long-run Phillips curve has

to do with wage flexibility.

265.

Supply-side economists contend that aggregate supply is the relevant policy factor in

influencing the price level and real output in an

economy.

266.

Supply-side economists recommend higher marginal tax rates to increase aggregate

supply and real output.

267.

The Laffer Curve indicates that lower tax rates will increase output.

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FALSE

268.

The Laffer Curve suggests that within a certain range, lower tax rates will increase tax

revenues.

269.

One implication of the Laffer Curve in supply-side arguments is that cutting taxes may

actually reduce the budget deficit, contrary to what

traditional economics teaches.

270.

The experience of the United States with supply-side policies is that tax cuts affect the

economy more on the demand side rather than the

supply side.

38-157

written consent of McGraw-Hill Education.

AACSB: Knowledge Application

Access i b i lity: Keyboard Navigation

Blooms: Understand

Difficu l t y : 02 Medium

Learning Objective: 38-05 Explain the relationship between tax rates, tax revenues, and

aggregate supply.

Test Bank: II

Topic: Taxation and Aggregate Supply