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| 1 | |
In macroeconomics, the long run is characterized by: |
| | A) | a horizontal aggregate supply curve |
| | B) | a vertical aggregate demand curve |
| | C) | a period in which nominal wages have fully responded to changes in the price level |
| | D) | a period in which nominal wages are fixed |
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| 2 | |
Consider a period in which there is sufficient time for nominal wages to respond fully to changes in the price level. In this case, the: |
| | A) | aggregate demand curve is horizontal |
| | B) | aggregate demand curve is vertical |
| | C) | aggregate supply curve is horizontal |
| | D) | aggregate supply curve is vertical |
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| 3 | |
Starting from a position of full-employment, an episode of demand-pull inflation will: |
| | A) | increase output in both the short run and the long run |
| | B) | increase output in the short run but not the long run |
| | C) | increase output in the long run but not the short run |
| | D) | have no effect on output in either the short run or the long run |
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| 4 | |
If an adverse supply shock initiates an episode of cost-push inflation and the government does nothing in response, there will likely be: |
| | A) | an increase in real GDP in the short run but not the long run |
| | B) | an inflationary spiral |
| | C) | a recession |
| | D) | a decrease in aggregate demand |
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| 5 | |
If wages and prices are flexible in the long run, a recession created by a decrease in aggregate demand will: |
| | A) | automatically be made worse by eventual further decreases in aggregate demand |
| | B) | automatically self-correct by eventual increases in aggregate supply |
| | C) | automatically self-correct by eventual increases in aggregate demand |
| | D) | automatically be made worse by eventual decreases in aggregate supply |
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| 6 | |
Answer the next question on the basis of the following diagram.
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Refer to the diagram. Suppose the price level is P1 and GDP is at its full-employment potential Qf. An increase in aggregate demand from AD1 to AD2 will move the economy to: |
| | A) | point a if nominal wages are given time to fully adjust to the change in the price level |
| | B) | point c if nominal wages are given time to fully adjust to the change in the price level |
| | C) | point a if nominal wages do not fully adjust to the change in the price level |
| | D) | back to point d if nominal wages do not fully adjust to the change in the price level |
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| 7 | |
The stagflation of the 1970s and early 1980s was primarily the result of a series of adverse shocks to aggregate supply. |
| | A) | True |
| | B) | False |
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| 8 | |
One of the central assumptions underlying the Laffer curve is that: |
| | A) | tax revenue is maximized at a tax rate of 100% |
| | B) | tax revenue always increases with increases in the tax rate |
| | C) | the current marginal tax rate structure is regressive |
| | D) | a cut in the tax rate may increase tax revenue |
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| 9 | |
Deflation and disinflation are: |
| | A) | both terms to describe a decrease in the price level |
| | B) | both terms to describe a decrease in the rate of inflation |
| | C) | a decrease in the price level and a decrease in the rate of inflation, respectively |
| | D) | a decrease in the rate of inflation and a decrease in the price level, respectively |
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| 10 | |
Suppose the economy is initially in equilibrium at full-employment with stable inflation. If a change in aggregate demand then causes the actual rate of inflation to rise above its expected rate: |
| | A) | output will temporarily fall below its potential level |
| | B) | output will temporarily rise above its potential level |
| | C) | the short-run Phillips curve will shift to the left |
| | D) | the short-run Phillips curve will shift to the right |
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