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1 | |
In the AD-AS model, demand-pull inflation occurs because of an increase in aggregate demand that will eventually produce |
| | A) | An increase in real wages, thus a decrease in the short-run aggregate supply curve |
| | B) | An increase in nominal wages, thus an increase in the short-run aggregate supply curve |
| | C) | A decrease in nominal wages, thus a decrease in the short-run aggregate supply curve |
| | D) | An increase in nominal wages, thus a decrease in the short-run aggregate supply curve |
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2 | |
In the short run, demand-pull inflation increases real |
| | A) | Output and decreases the price level |
| | B) | Wages and nominal wages |
| | C) | Output and price level |
| | D) | Wages and decreases nominal wages |
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3 | |
In the long run, demand-pull inflation |
| | A) | Decreases real wages |
| | B) | Increases prices |
| | C) | Increases the rate of unemployment |
| | D) | Decreases real output |
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4 | |
A probable result of a government trying to reduce unemployment associated with cost-push inflation through stimulative fiscal policy or monetary policy is |
| | A) | An inflationary spiral |
| | B) | A recession |
| | C) | disinflation |
| | D) | stagflation |
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5 | |
What will occur if a government adopts a hands-off approach to cost-push inflation? |
| | A) | An increase in real output |
| | B) | A fall in unemployment |
| | C) | Demand-pull inflation |
| | D) | A recession |
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6 | |
If prices and wages are flexible, a recession will increase real wages as prices fall. Eventually, nominal wages will |
| | A) | Fall to the previous real wages and the short-run aggregate supply will increase |
| | B) | Rise to the previous real wages and the short-run aggregate supply will increase |
| | C) | Fall to the previous real wages and the short-run aggregate supply will decrease |
| | D) | Rise to the previous real wages and the short-run aggregate supply will decrease |
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7 | |
The traditional Phillips curve is based on the idea that with a constant short-run aggregate supply curve, the greater the increase in aggregate demand |
| | A) | The greater the increase in the unemployment rate |
| | B) | The greater the increase in the rate of inflation |
| | C) | The greater the increase in real output |
| | D) | The smaller the increase in nominal wages |
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8 | |
The Phillips Curve for the 1960's shows the |
| | A) | Inverse relationship between the rate of inflation and the rate of unemployment |
| | B) | inverse relationship between nominal prices and real wages |
| | C) | Direct relationship between unemployment and demand-pull inflation |
| | D) | Trade-off between the short-run and long-run |
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9 | |
Assuming aggregate demand remains constant, supply shocks that cause a leftward shift in the aggregate supply curve will |
| | A) | Decrease prices |
| | B) | Decrease the rate of unemployment |
| | C) | Increase real output |
| | D) | Increase both prices and the rate of unemployment |
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10 | |
Which would have been a factor contributing to the demise of stagflation between 1983 to 1989 |
| | A) | A lessening of foreign competition |
| | B) | A strengthening of the monopoly power of OPEC |
| | C) | A recession brought on largely by a tight monetary policy |
| | D) | An increase in the regulation of previously deregulated industries |
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11 | |
The shift in the Phillips Curve during the period of 1983 to 1989 was the result of a |
| | A) | Rightward shift in aggregate demand |
| | B) | Rightward shift in aggregate supply |
| | C) | Leftward shift in aggregate demand |
| | D) | Leftward shift in aggregate supply |
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12 | |
The natural rate hypothesis suggests that any rate of inflation is |
| | A) | In the short-run: temporary |
| | B) | In the long-run: declines as unemployment increases |
| | C) | Compatible with any given natural rate of unemployment |
| | D) | Is always traded-off against unemployment in the long-run |
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13 | |
The Phillips Curve is roughly vertical at the natural rate of unemployment because |
| | A) | Falling profits in response to increasing wages negate the stimuli for production and therefore employment in the long-run |
| | B) | Profits increase as aggregate demand increases and this causes higher prices which encourages more production which causes more employment in the long-run |
| | C) | Falling real wages makes production cheaper and more workers are hired. |
| | D) | All of the above |
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14 | |
The long-run Phillips Curve is |
| | A) | horizontal |
| | B) | vertical |
| | C) | Upward sloping |
| | D) | Downward sloping |
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15 | |
The misery index adds together which of the following to arrive at a measure of economic discomfort |
| | A) | Tax rates and work hours |
| | B) | Disinflation and unemployment |
| | C) | Inflation and unemployment |
| | D) | The exchange rate and the cost of production |
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16 | |
Disinflation can be explained using the natural rate belief that when the |
| | A) | Actual rate of inflation is lower than the expected rate, the unemployment rate will rise to bring the expected and actual rates into balance |
| | B) | Expected rate of inflation is lower than the actual rate, the unemployment rate will rise to bring the expected and actual rates into balance |
| | C) | Actual rate of inflation is higher than the expected rate, the unemployment rate will fall to bring the expected rate and actual rates into balance |
| | D) | Expected rate of inflation is higher than the actual rate, the unemployment rate will fall to bring the expected and actual rates into balance |
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17 | |
The effects of oil price increases on core inflation have been lessened since 1980 possibly because of all of the following except |
| | A) | The Bank of Canada has raised interest rates |
| | B) | Products are more oil efficient |
| | C) | The economy is producing less high oil consuming items like tractors and trucks |
| | D) | The demand for oil has decreased |
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18 | |
The aggregate supply curve is thought to be |
| | A) | Stable in the short-run as long as nominal wages don't increase in the short-run in response to the increase in prices |
| | B) | Stable in the long-run because real wages are continually changing |
| | C) | Shifting to the right when the price of capital increases |
| | D) | Shifting to the right when nominal wages increase |
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19 | |
According to the Laffer Curve, a reduction in the rate of taxation from 100% to a point before the maximum level of tax revenue will |
| | A) | Increase prices |
| | B) | Increase tax revenues |
| | C) | Decrease real output |
| | D) | Decrease real wages |
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20 | |
In the case of cuts in tax rates, most economists think that |
| | A) | At Qf, reduced taxes may increase aggregate demand causing demand-pull inflation |
| | B) | At Qf, reduced taxes may lead to cost-push inflation |
| | C) | The demand-side and the supply-side side effects cancel each other |
| | D) | There are only supply-side effects |
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21 | |
Supply-side economists believe that decreased tax rates would lead to |
| | A) | Increased tax evasion |
| | B) | Increased transfer payments |
| | C) | Higher government deficits |
| | D) | A reduction in the inclination to engage in either tax avoidance or tax evasion |
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22 | |
Studies show that reductions in tax rates lead to |
| | A) | People working less |
| | B) | People working more |
| | C) | Some people working less and some working more |
| | D) | No discernible effect on working hours |
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23 | |
Reductions in tax rates |
| | A) | Increase the opportunity cost of leisure |
| | B) | Decrease the opportunity cost of leisure |
| | C) | Have no effect on the opportunity cost of leisure |
| | D) | None of the above |
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24 | |
Criticisms of the Laffer Curve include |
| | A) | The possibility of deflation as a result of tax cuts |
| | B) | A possibility that labour supply may be overly sensitive to income tax rates |
| | C) | A possibility that investment may be overly sensitive to income tax rates |
| | D) | The economy's position on the Laffer Curve is unknown and undocumented |
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25 | |
Supply-side economists believe that the Canadian tax system reduces |
| | A) | Unemployment but causes inflation |
| | B) | Incentives to work, save and invest |
| | C) | Transfer payments to the poor |
| | D) | The effects of cost-push inflation |
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2002 McGraw-Hill Higher Education