Chapter 18 – Extending the Analysis of Aggregate Supply
86. Refer to the above diagram and assume the economy is initially at point b1. Point c1
represents:
87. Refer to the above 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:
88. Government can push the unemployment rate below the natural rate only by:
Chapter 18 – Extending the Analysis of Aggregate Supply
89. In the long run:
Chapter 18 – Extending the Analysis of Aggregate Supply
90. Refer to the above diagram. Assume that the natural rate of unemployment is 5 percent
and that the economy is initially operating at point a where the expected and actual rates of
inflation are each 6 percent. If the actual rate of inflation unexpectedly falls from 6 percent to
4 percent, then the unemployment rate will:
91. Refer to the above diagram. Assume that the natural rate of unemployment is 5 percent
and that the economy is initially operating at point a where the expected and actual rates of
inflation are each 6 percent. In the long run, the decline in the actual rate of inflation from 6
percent to 4 percent will:
Chapter 18 – Extending the Analysis of Aggregate Supply
92. Refer to the above diagram. Assume that the natural rate of unemployment is 5 percent
and that the economy is initially operating at point c where the expected and actual rates of
inflation are each 4 percent. If the actual rate of inflation unexpectedly rises from 4 percent to
6 percent, the economy will:
93. In the above diagram:
Chapter 18 – Extending the Analysis of Aggregate Supply
94. Refer to the above diagram. Point b on short-run Phillips Curve PC1 represents a rate of:
95. Refer to the above diagram. Point b would be explained by:
Chapter 18 – Extending the Analysis of Aggregate Supply
96. Refer to the above diagram. Point b would not be permanent because the:
97. Refer to the above diagram. The move of the economy from c to e on short-run Phillips
Curve PC2 would be explained by an:
98. Which of the following is a tenet of supply-side economics?
Chapter 18 – Extending the Analysis of Aggregate Supply
99. The Laffer Curve is a central concept in:
100. The above curve is known as the:
Chapter 18 – Extending the Analysis of Aggregate Supply
101. Refer to the above diagram. Supply-side economists believe that tax rates are typically:
102. In the above curve, a decline in the tax rate from c to b would:
103. Refer to the above diagram. If the tax rate is currently c and the government wants to
maximize tax revenue, it should:
Chapter 18 – Extending the Analysis of Aggregate Supply
104. Refer to the above diagram. The general agreement of most economists is that the U.S.
economy today is:
105. Supply-side economist Arthur Laffer has argued that:
106. A basic criticism of supply-side economics is that:
Chapter 18 – Extending the Analysis of Aggregate Supply
107. Critics of supply-side economics:
108. If graphed, the relationship shown above would depict this economy’s:
Chapter 18 – Extending the Analysis of Aggregate Supply
109. Refer to the table above. If the current tax rate is 60 percent, supply-side economists
would advocate:
110. In 1993 the Federal government boosted income tax rates. In the seven years that
followed:
111. In 1993 the Federal government boosted income tax rates. The change in tax revenue that
occurred in the seven years that followed:
Chapter 18 – Extending the Analysis of Aggregate Supply
112. (Consider This) The ideas of economist Arthur Laffer became the centerpiece for tax
policy during the:
113. (Consider This) Economist Arthur Laffer equated Robin Hood to:
114. (Last Word) According to the research of Christina Romer and David Romer:
Chapter 18 – Extending the Analysis of Aggregate Supply
115. (Last Word) According to the research of Christina Romer and David Romer, tax
increases implemented to reduce an inherited budget deficit:
116. The short-run aggregate supply curve is vertical and the long-run aggregate supply curve
is horizontal.
117. The short-run aggregate supply curve shifts to the left when nominal wages rise in
response to price level increases.
Chapter 18 – Extending the Analysis of Aggregate Supply
118. In the extended AD-AS model, the long-run aggregate supply curve is vertical.
119. Demand-pull inflation and cost-push inflation are identical concepts because both
involve lower unemployment rates and rising prices.
120. The Phillips Curve suggests an inverse relationship between increases in the price level
and the level of employment.
121. A shift in the Phillips Curve to the left will improve the short-run inflation-
unemployment choices available to society.
Chapter 18 – Extending the Analysis of Aggregate Supply
122. A rightward and upward shift of the Phillips Curve is consistent with the occurrence of
stagflation.
123. There is no tradeoff between unemployment and inflation in the long run.
124. The Laffer Curve shows the tradeoff between the price level and tax rates.
125. The Laffer Curve underlies the contention that lower tax rates need not reduce tax
revenues.
Chapter 18 – Extending the Analysis of Aggregate Supply
Answer the question on the basis of the following economic data for a hypothetical economy:
126. The above data indicate that the economy has entered a period of demand-pull inflation.
127. Refer to the above data. It would be appropriate stabilization policy to raise interest rates,
raise taxes, and reduce government expenditures.
Chapter 18 – Extending the Analysis of Aggregate Supply
128. Refer to the above data. There is evidence that cost-push inflationary pressure is present
in this economy.
129. Refer to the above data. This economy has encountered stagflation.