ECON 201
Updated: Aug 15, 2022
Test Bank: II Topic: The Inflation-Unemployment Relationship
A rightward shift of the Phillips Curve suggests that
A. a higherrate of unemployment is associated with each level of inflationrate.
a lower rate of inflation is associated with each level of unemployment rate.
the aggregate supply curve has shifted to the right.
the aggregate demand curve has shifted to the left.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
Stagflation can be described as a
A. shift right in the aggregate supply curve.
B. shift left in the aggregate supply curve.
period of stable prices and high unemployment.
period of rising prices and low unemployment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
Which event probably contributed to the stagflation of the 1970s?
worldwide agricultural surpluses
an improvement in productivity of resources
an appreciation in the dollar
D. a sharp rise in the price of oil
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
Adverse aggregate supply shocks would result in
a lower rate of inflationand a higher rate of unemployment.
a higher rate of inflationand a lower rate of unemployment.
a lower rate ofinflation and a lower rate of unemployment.
D. a higher rate of inflation and a higher rate ofunemployment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
A potential cause of stagflation is
A. agricultural surpluses.
B. declining productivity.
improving labor productivity.
a rise in the value of the dollar.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
Which factor contributed to the demise of stagflation during the 1982–1989 period?
A. a lesseningof foreign competition
B. the decline of the monopolypower of OPEC
an increasein the per-unit cost of production
an increasein regulation of the airline and trucking industries
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
Stagflation's demise during the 1980s resultedin a
movement along the Phillips Curve toward less unemployment.
movement along the Phillips Curve toward more inflation.
C. shift in the Phillips Curve to the left.
D. shift in the Phillips Curve to the right.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
In the period 2011 through 2015, as the economy slowly mended, the economy experienced an ongoing pattern of fallinginflation coinciding with fallingunemployment. This suggests a
movement up and to the left along a stable Phillipscurve.
movement down and to the right along a stable Phillipscurve.
Phillips curve shifting to the right.
D. Phillips curve shiftingto the left.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
The misery index is a measureof national economic discomfort that adds together a nation's
saving and investment.
budget deficit and publicdebt.
C. unemploymentrate and inflation rate.
D. level of taxationwith the amountof government spending.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
Consider the following national data: tax revenues as a percentage of GDP: 25percent; government spending as a percentageof GDP: 31 percent; unemployment rate: 9 percent;inflation rate: 6 percent. What is the misery index for this nation?
A. 15 percent
31 percent
34 percent
53 percent
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-03 Explain the short-run trade-off between inflation and unemployment (the Phillips Curve).
Test Bank: II Topic: The Inflation-Unemployment Relationship
191.
Refer to the graph. Assume the economy is at the initial position of B2. An increasein aggregate demand with no corresponding change in inflation expectations and wage rates will tend to
A. temporarily move the economy to point B3.
B. temporarily move the economy to point C2.
temporarily move the economy to point C1.
have no effect in shifting the economy from point B2.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Type: Graph
192.
Refer to the graph. Assume the economy is at the initial position of B2. An increasein aggregate demand with a corresponding adjustment in inflation expectations and wages will tend to
A. move the economy to point B3.
move the economy to point C2.
move the economy to point C1.
have no effect in shifting the economy from point B2.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Type: Graph
193.
Refer to the graph. Assume the economy is at the initial position of B2. It is possible for the government to reduce the unemployment rate and move the economy to C2 if
A. expected inflation remains at 4 percent.
expected inflation becomes 8 percent.
actual inflation remains at 4 percent.
actual inflation is at 12 percent.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Type: Graph
194.
Refer to the graph. What events would tend to temporarily move the economyfrom point B2 to C2?
a tight monetary policy
a contractionary fiscalpolicy
C. an easy money policy
D. an increase in aggregate supply
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Type: Graph
195.
Refer to the graph. The economy is at point B2, and then aggregate demand increases. In the short run, the economywill
A. stay at point B2 and remain there in the long run.
B. move to point C2 and in the long run move on to B3.
move to point B3 and in the long run move on to C2.
move to point B1 and in the long run move back to B2.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Type: Graph
The automatic adjustment mechanism that makes the economy move toward the long-runPhillips Curve is
A. expansionary fiscal or monetary policy.
B. inflation expectations and wage adjustments.
contractionary fiscal or monetary policy.
increases in productivity over time.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
The long-run Phillips Curve is vertical at
A. a price level of 100.
B. the natural rate of unemployment.
the natural rate of inflation.
potential GDP.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
In the short run, if the actual rate of inflation falls lowerthan the expectedrate, then
A. profits will temporarily fall and unemployment will temporarily rise.
profits will temporarily rise and unemployment will temporarily fall.
nominal wages will rise, profits will rise, and unemployment will fall.
nominal wages will fall, profits will fall, and unemployment will rise.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
The short-run Phillips Curve assumesan unchanging
A. actual rate of inflation.
B. expected rate of inflation.
unemployment rate.
fiscal or monetary policy.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
If the expected rate of inflationrises, then the short-run Phillips Curve will
A. shift to the right.
shift to the left.
become vertical.
become flat.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
When the rate of inflationis decreasing, this economic condition is called
A. disinflation.
depreciation.
stagflation.
deflation.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Based on the Phillips Curve, when the actualrate of inflationis greater than the expected rate, the unemployment rate will
rise temporarily, but decreases in nominal wages will bring the expected and actual rates of inflation into balance.
rise temporarily, but increases in nominal wages willbring the expected and actualrates of inflationinto balance.
C. fall temporarily, but increases in nominalwages will bring the expected and actualrates of inflationinto balance.
D. fall temporarily, but decreases in nominal wages willbring the actualandexpected rates of inflationinto balance.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Disinflation can be explained by the Phillips Curve analysis as resultingfrom a situationwhere the actual rate of inflationis initially less than the expected rate, causing the unemployment rate to
A. rise temporarily. However, consequent decreases in nominal wages will eventually bring the actual and expectedrates of inflationinto balance.
rise temporarily. However, consequent increases in nominalwages will eventually bring the actual and expected rates of inflation into balance.
fall temporarily. However, consequent increases in nominal wages will eventually bring the actual and expected rates of inflationinto balance.
fall temporarily. However, consequent decreases in nominal wages will eventually bring the actual and expected rates of inflationinto balance.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
The short-run Phillips Curve intersects the long-run PhillipsCurve at the
nominal rate of interest.
current rate of inflation.
real interest rate.
D. natural rate of unemployment.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Assume contracts between workers and employersthat call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent. Should inflation actually be 6 percent, then
nominal wages fall by 5 percent.
real wages fall by 6 percent.
nominal wages fall by 1 percent.
D. real wages fall by 1 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
The analysis of the short-run and long-run PhillipsCurve suggests that an increase in aggregate demand
A. influences real output and employmentin the long run, but not in the short run.
B. influences real outputand employment in the shortrun, but not in thelongrun.
does not influence the price level in the short run or the long run but only real output and employment.
does not influence real output and employmentin the short run or the long run but only the price level.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
YearPrice Index1100211031204130 207.
Refer to the table. What would be the annual inflationrates in Years 2, 3, and 4, respectively?
A. 10, 9.1, and 8.3 percent
10, 8.3, and 7.7 percent
10, 10, and 10 percent
9.5, 8.3, and 6.6 percent
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
YearPrice Index1100211031204130 208.
Refer to the table. Calculating the annual inflationrates would indicate that this economy is experiencing
stagflation.
deflation.
C. disinflation.
D. constant inflation.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-04 Discuss why there is nolong-run trade-off between inflationand unemployment.
Test Bank: II Topic: The Long-RunPhillips Curve
Which is a basic proposition of supply-side economics?
A. The Federal Reserve should target the federal funds rate rather than the money supply.
B. Tax-hikes on business reduce productivity and output and reduce aggregate supply.
Low marginal tax rates reduce incentives to work, saving,and investment.
Transfer payments increase incentives to work.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Supply-side economists contend that the system of taxationin the United States
A. creates incentives to save and invest.
B. creates disincentives to work.
generates maximum tax revenue.
reduces the effects of cost-pushinflation.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Supply-side policies can be described in terms of the aggregate demand and aggregate supply model as an attempt to shift
A. the aggregate demand curve to the right.
B. the aggregate supply curve to the right.
both the aggregate supply curve and the aggregate demand curve to the right.
the aggregate supply curve to the right and the aggregate demand curve to the left.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
A Congressional representative who calls for a decrease in tax rates in order to increase saving, work effort, and economic growth would most likely be advocating
an easy money policy.
a tight money policy.
C. a supply-side fiscal policy.
D. a contractionary fiscal policy.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
In an aggregate demand-aggregate supply framework, fiscalpolicy that emphasizes cutting taxes as a means of improving incentives to work, save, and invest would be characterized primarily as a
rightward shift of the aggregatedemand curve.
leftward shift of the aggregatedemand curve.
C. rightward shift of the long-run aggregatesupply curve.
D. leftward shift of the long-runaggregate supply curve.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Which action will tend to decrease aggregatesupply, according to supply-side economists?
a decrease in government spending
an increasein the stock of capital
a decrease in the money supply
D. an increasein marginal tax rates
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Assume that a person saves $50,000 and earns 7 percentannual interest. If the marginaltax rate is 36 percent, then the after-taxinterest earnings will be
A. $2,000.
B. $2,240.
C. $2,760.
D. $3,500.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Assume that a person earns $600 per day at a certain job. If the marginaltax rate is cut from 40 percentto 30 percent, then this person's after-tax daily earnings will
decrease from $240 to $180.
increase from $480 to $540.
decrease from $540 to $480.
D. increase from $360 to $420.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
One central idea in supply-side economics concerning budget deficits is illustrated by the
production possibilities curve.
aggregate supply curve.
C. Laffer Curve.
D. Phillips Curve.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
According to the Laffer Curve, a cut in the tax rate fromabove the maximum-revenue rate to a rate lower than the maximum-revenue rate will
A. decrease real GDP.
B. increase tax revenues.
decrease tax revenues.
have no effect on tax revenues.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
219.
The graph describes the notion that as tax rates rise from zero percent, tax revenues will
A. increase at first, but then declineeventually as tax rates continue rising.
decrease at first, but then increase eventually as tax rates continue rising.
rise higher and higher.
fall lower and lower until they shrink to zero.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
220.
Refer to the graph. If tax rates are between b and d, then supply-side economists are of the opinion that a(n)
A. increase in tax revenueswill increase tax rates.
B. decrease in tax rates will increasetax revenues.
increase in tax rates will increasetax revenues.
decrease in tax revenues will decreasetax rates.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
221.
Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between
A. b and d and that a decrease in tax rates will decrease tax revenues.
B. 0 and b and that a decrease in tax rates will decrease tax revenues.
0 and b and that a decrease in tax rates will increasetax revenues.
b and d and thata decrease in tax rates will increasetax revenues.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
222.
Refer to the graph. A movement from point C to point D on the Laffer Curve represents
increased tax rates from T2 to T3 and increased tax revenuesfrom R2 to R3.
decreased tax rates from T3 to T2 and increased tax revenues from R2 to R3.
C. decreased tax rates from T3 to T2 and decreased tax revenues from R3 to R2.
D. increased tax rates from T2 to T3 and decreasedtax revenues from R3 to R2.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
223.
Refer to the graph. If the government wants to collect tax revenues equal to R2, then the tax rate should beset at
T2 or T3.
T2 only.
T4 only.
D. T2 or T4.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
224.
Refer to the graph. If the government wishes to collect tax revenues equal to R2, supply-side economists would strongly advise the government to set tax rates at
A. T2 or T3.
B. T2 only.
T4 only.
T2 or T4.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
225.
Refer to the Laffer Curve. A cut in the tax rate from T5 to T4 would
A. decrease tax revenues and support the views of supply-side economists.
B. increase tax revenues and support the views of supply-side economists.
increase tax revenues and supportthe views of mainstreameconomists.
decrease tax revenues and supportthe views of mainstreameconomists.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
226.
Refer to the Laffer Curve. A cut in the tax rate from T2 to T1 would
decrease tax revenues and support the views of supply-side economists.
increase tax revenues and support the views of supply-side economists.
increase tax revenues and support the views of mainstream economists.
D. decrease tax revenues and supportthe views of mainstreameconomists.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.
Test Bank: II Topic: Taxationand Aggregate Supply
Type: Graph
227.
Refer to the Laffer Curve. An increase in the tax rate from T3 to T4 would
A. decrease tax revenues and support the views of supply-side economists.
increase tax revenues and support the views of supply-side economists.
increase tax revenues and support the views of mainstream economists.
decrease tax revenues and support the views of mainstream economists.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 18-05 Explain the relationship between tax rates, tax revenues, and aggregate supply.