1. in Terms of Aggregate Supply, the Short Run Is a Period in Which

AP ECONOMICS: CHAPTER 16 QUIZ

1.  In terms of aggregate supply, the short run is a period in which:

a)  the price level is constant

b)  employment is constant

c)  real output is constant

d)  nominal wages and other input prices are constant

2. Other things equal, and increase in the price level will:

a)  shift the aggregate supply curve to the right

b)  shift the aggregate demand curve to the right

c)  cause a movement up along a short-run aggregate supply curve

d)  cause a movement down an aggregate demand curve

3. In the extended aggregate demand-aggregate supply model:

a)  long-run equilibrium occurs wherever the aggregate demand curve intersects the short-run aggregate supply curve

b)  the long-run aggregate supply curve is horizontal

c)  the price level is the same regardless of the location of the aggregate demand curve

d)  long run equilibrium occurs at the intersection of the aggregate demand curve, the short-run aggregates supply curve, and the long run aggregate supply

4. Refer to the above diagram. The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁. Demand-pull inflation in the short run is best shown as:

a)  a shift of the aggregate demand curve from AD₁ to AD₂

b)  a move from d to b to a

c)  a move directly from d to a

d)  a shift of the aggregate supply curve from AS₁ to AS₂

5. Refer to the above diagram. The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁. In the long run, demand-pull inflation is best shown as:

a)  a shift of aggregate demand from AD₁ to AD₂ followed by a shift of aggregate supply from AS₁ to AS₂

b)  a move from d to b to a

c)  a shift of aggregate supply from AS₁ to AS₂ followed by a shift of the aggregate demand from AD₁ to AD₂

d)  a move from a to d

6. The traditional Philips Curve suggests a tradeoff between:

a)  price level stability and income equality

b)  the level of unemployment and price level stability

c)  unemployment and income equality

d)  economic growth and full employment

7. “Stagflation” refers to:

a)  an increase in inflation accompanied by decreases in real output and employment

b)  a decline in the price level accompanied by increases in real output and employment

c)  a simultaneous increase in real output and the price level

d)  a simultaneous reduction in real output and the price level

8. A rightward shift of the traditional Philips Curve would suggest that:

a)  the productivity of labor increased

b)  a higher rate of inflation is now associated with each rate of unemployment than previously

c)  cost-push inflation decreased

d)  a lower rate of inflation is now associated with each rate of unemployment than previously

9. An adverse aggregate supply shock:

a)  automatically shift the aggregate demand curve rightward

b)  causes the Philips Curve to shift leftward and downward

c)  can be caused by a boost in the rate of growth of productivity

d)  can cause stagflation

10. Refer to the above diagram. Assume that the natural rate of unemployment is 5.5% and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6%. If the actual rate of inflation unexpectedly falls from 6% to 4%, then the unemployment rate will:

a)  temporarily fall from 5.5% to 4%

b)  permanently fall from 5.5% to 4%

c)  temporarily rise from 5.5% to 7.5%

d)  permanently rise from 5.5%to 7.5%

11. Refer to the above diagram. Assume that the natural rate of unemployment is 5.5% and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6%. In the long run, the decline in the actual rate of inflation from 6% to 4% will:

a)  reduce the unemployment rate

b)  reduce corporate profits in real terms

c)  have no effect on the unemployment rate

d)  reduce real domestic output

12. Refer to the above diagram. Assume that the natural rate of unemployment is 5.5% and that the economy is initially operating at point a where the expected and actual rates of inflation are each 6%. According to rational expectations theory, if firms and workers fully anticipate the decline in the actual rate of inflation from 6% to 4%, the economy will:

a)  move from a to b and eventually to c

b)  move directly from a to c

c)  remain at a

d)  move from a to d and eventually to c

13. Which of the following is not a tenet of supply-side economics?

a)  High marginal tax rates severely discourage work, saving, and investment

b)  Increases in social security taxes and other business taxes shift the aggregate supply curve leftward

c)  The Federal Reserve should adhere to a monetary rule which limits increases in the money supply to a fixed annual rate

d)  Transfer payments reduce incentives to work

14. Supply-side economists say that:

a)  Deregulation of business will shift the aggregate supply curve rightward

b)  Demand creates its own supply

c)  Tariffs should be imposed on imports to shit the American aggregate supply curve rightward

d)  The Federal budget deficit should be eliminated through increases in taxes

15. Supply-side economics manifested itself mainly through the economic policies of the:

a)  Carter administration

b)  Reagan administration

c)  Bush administration

d)  Clinton administration

16. Supply-side economists criticize mainstream economists for:

a)  Not recognizing the possibility of cost-push inflation

b)  Focusing macroeconomic policy mainly on aggregate demand

c)  Assuming that households and businesses form rational expectations about complex economic matters

d)  Neglecting to note the severe impacts of budget deficits on investment spending

17. The Laffer Curve is a central concept in:

a)  Monetarism

b)  Keynesianism

c)  The rational expectations theory

d)  Supply-side economics

18. Prominent supply-side economist Arthur Laffer has argued that:

a)  There is no empirically proven relationship between tax rates and incentives

b)  Large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand

c)  The only way to eliminate stagflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations.

d)  Large cuts in personal and corporate income taxes will increase aggregate demand more than aggregate supply

19. “Reaganomics” advocated:

a)  An increase in the growth of government

b)  An increase in government regulation of businesses

c)  Cuts in corporate and personal income taxes

d)  Redistribution of income through higher and more progressive marginal tax rates.

20. The ultimate goal of “Reaganomics” was to shift the aggregate:

a)  Supply curve leftward

b)  Supply curve rightward

c)  Demand curve leftward

d)  Demand curve rightward

KEY

1.  D

2.  C

3.  D

4.  A

5.  A

6.  B

7.  A

8.  B

9.  D

10.  C

11.  C

12.  B

13.  C

14.  A

15.  B

16.  B

17.  D

18.  B

19.  C

20.  B