Deck 16: Supply-Side Policy: Short-Run Options

Question 1

The idea that a shift in aggregate demand affects both inflation and unemployment is consistent with

A)The Keynesian view of the economy.
B)The consensus view of the economy.
C)The monetarist view of the economy.

Answer 1

The consensus view of the economy.

Question 2

A rightward shift in aggregate demand will cause an increase in the price level and no change in output if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.

Answer 2

Vertical.

Question 3

If the aggregate supply curve is upward-sloping,a decrease in aggregate demand will cause

A)A decrease in the price level and an increase in unemployment.
B)A decrease in the price level and a decrease in unemployment.
C)An increase in the price level and an increase in unemployment.

Answer 3

A decrease in the price level and an increase in unemployment.

Question 4

The total quantity of output producers are willing and able to supply at alternative price levels in a given time period is

A)Aggregate demand.
B)Aggregate supply.
C)Market demand.

Question 5

The Phillips curve shows

A)A historical (inverse)relationship between the rate of unemployment and the rate of inflation.
B)A historical (direct)relationship between the rate of unemployment and the rate of inflation.
C)A historical (inverse)relationship between the rate of unemployment and the rate of growth of real GDP.

Question 6

In the simple Keynesian model,

A)Inflation becomes a problem only if demand increases at full employment.
B)Inflation is a problem whenever demand increases.
C)Inflation is never a problem.

Question 7

Monetarists assert that changes in the money supply

A)Affect prices and real GDP.
B)Can affect only the price level.
C)Can affect only real GDP.

Question 8

A leftward shift in aggregate demand will cause a decrease in both output and price level if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.

Question 9

Which of the following shifts,ceteris paribus,will cause lower rates of both unemployment and inflation?

A)An increase in aggregate demand.
B)An increase in aggregate supply.
C)A decrease in aggregate demand.

Question 10

The consensus view

A)Incorporates only the Keynesian perspective.
B)Incorporates only the monetarist perspective.
C)Incorporates both the Keynesian and monetarist perspective.

Question 11

Which view of aggregate supply predicts that the outcomes of fiscal and monetary policy depend on how close the economy is to full employment?

A)The Keynesian view.
B)The monetarist view.
C)The hybrid view.

Question 12

Which of the following will cause an increase in unemployment and inflation at the same time?

A)A rightward shift of aggregate supply.
B)A rightward shift of aggregate demand.
C)A leftward shift of aggregate supply.

Question 13

Which of the following is an accurate statement about the aggregate supply curve?

A)Keynesians view it as vertical up until full employment,at which point it becomes horizontal.
B)Monetarists view it as horizontal.
C)The consensus view is that it begins as horizontal,then starts to slope upward to the right as the economy approaches full employment,and eventually becomes vertical beyond full employment.

Question 14

Which of the following is consistent with the general consensus about the shape of the short-run aggregate supply curve?

A)Horizontal until full employment is reached,and then vertical.
B)Horizontal,then upward-sloping,and ultimately vertical.
C)Horizontal at all production levels.

Question 15

A horizontal aggregate supply curve below the level of full employment is most consistent with which of the following views of the economy?

A)Keynesian.
B)Monetarist.
C)Supply-side.

Question 16

The closer the economy is to capacity,the greater the risk that fiscal or monetary stimulus will cause

A)A decrease in the price level and no change in output.
B)No change in the price level and no change in output.
C)An increase in the price level and no change in output.

Question 17

An aggregate supply curve that is always vertical is most consistent with which of the following views of the economy?

A)Keynesian.
B)Monetarist.
C)Supply-side.

Question 18

According to the consensus view,when demand increases near full employment,

A)The price level increases,but real GDP stays the same.
B)Real GDP increases,but the price level stays the same.
C)Both the price level and real GDP increase.

Question 19

A rightward shift in aggregate demand will cause an increase in output and price level if aggregate supply is

A)Upward-sloping to the right.
B)Vertical.
C)Downward-sloping to the right.

Question 20

Which of the following characterizes stagflation?

A)An increase in both unemployment and inflation.
B)An increase in unemployment but a decrease in inflation.
C)A decrease in both unemployment and inflation.

Question 21

A movement along the Phillips curve shows that the unemployment rate and inflation rate are

A)Inversely related to each other.
B)Directly related to each other.
C)Changing in response to shifts in aggregate supply.

Question 22

According to supply-side theory,which of the following would cause a leftward shift in the aggregate supply curve?

A)Increasing government regulations.
B)Reducing the minimum wage.
C)Reducing discrimination in employment.

Question 23

An increase in the misery index would definitely result from

A)A leftward shift of the Phillips curve.
B)A rightward shift of the Phillips curve.
C)A movement along the Phillips curve toward greater unemployment.

Question 24

The misery index is the

A)Inflation rate minus the unemployment rate.
B)Unemployment rate minus the interest rate.
C)Inflation rate plus the unemployment rate.

Question 25

Which of the following can cause a leftward shift in the aggregate supply curve?

A)A major natural disaster such as hurricane or earthquake.
B)Lower marginal tax rates.
C)A bumper agricultural crop.

Question 26

Which of the following is most likely to cause the aggregate supply curve to shift to the right?

A)An increase in the money supply.
B)A one-time tax rebate.
C)A decrease in marginal tax rates.

Question 27

Macro economic misery diminished during the first Reagan administration,which means that the Phillips curve

A)Maintained its position despite important changes in the composition of the labor force.
B)Shifted to the left,thereby implying an easing of the trade-off between inflation and unemployment.
C)Shifted to the right,thereby implying that stagflation had become a more acute problem than before.

Question 28

Which of the following will definitely cause the value of the misery index to increase?

A)Greater stagflation.
B)A leftward shift of the Phillips curve.
C)A rightward shift of the aggregate supply curve.

Question 29

Which of the following is the best indication that stagflation is occurring?

A)Rising unemployment rate and falling inflation rate.
B)Rising unemployment rate and rising inflation rate.
C)Falling unemployment rate and falling inflation rate.

Question 30

Only a ________ shift of the ________ curve can reduce unemployment and inflation at the same time.

A)leftward;AS
B)leftward;AD
C)rightward;AS

Question 31

Supply-side policies are designed to achieve

A)A leftward shift in the Phillips curve.
B)A leftward shift of the aggregate supply curve.
C)A lower inflation rate but a higher unemployment rate.

Question 32

Rightward AS shifts will cause

A)Leftward Phillips curve shifts.
B)Rightward Phillips curve shifts.
C)Movements up and to the left along the existing Phillips curve.

Question 33

Which of the following is a goal of supply-side policy?

A)A steeper slope for the Phillips curve.
B)A lower rate of inflation at every unemployment rate.
C)A movement along the Phillips curve.

Question 34

Stagflation refers to

A)Inflation resulting from lower unemployment rates.
B)The simultaneous occurrence of higher inflation and higher unemployment rates.
C)Negative inflation rates.

Question 35

Demand-side policies alone result in which of the following?

A)A shift of the Phillips curve to the left.
B)A movement along the Phillips curve.
C)A shift of the Phillips curve to the right.

Question 36

Phillips developed a curve that shows the trade-off between the

A)Full employment rate and interest rates.
B)Unemployment rate and inflation rates.
C)Full employment rate and the natural rate of unemployment.

Question 37

Which of the following is NOT an example of positive supply-side policy?

A)Higher marginal tax rates.
B)Eliminating excessive government regulation.
C)Improving infrastructure.

Question 38

A movement up the Phillips curve will cause

A)An increase in both unemployment and inflation.
B)A decrease in both unemployment and inflation.
C)A trade-off between unemployment and inflation.

Question 39

Higher unemployment and higher inflation rates will most likely occur with

A)A rightward shift of the Phillips curve.
B)A rightward shift of the aggregate supply curve.
C)A rightward shift of the aggregate demand curve.

Question 40

If the aggregate supply curve shifts to the right,the ________ curve shifts to the _______.

A)aggregate demand;left
B)Phillips;left
C)aggregate demand;right

Question 41

According to supply-side theorists,taxes

A)Alter disposable income only.
B)Alter disposable income and affect the incentives to work only.
C)Alter disposable income and affect the incentives to work and produce.

Question 42

Which of the following is likely to occur because of a decrease in marginal tax rates?

A)An increase in aggregate supply because of an increased incentive to work.
B)A decrease in aggregate supply because people cash in their investments.
C)A decrease in aggregate demand because of an increased incentive to work.

Question 43

According to supply-side theorists,a decrease in marginal tax rates will provide the incentive to

A)Work less.
B)Produce more.
C)Invest less.

Question 44

Supply-side tax cuts are designed to

A)Reduce marginal tax rates.
B)Increase the equity of the tax system.
C)Remove as much disposable income as possible from the economy.

Question 45

Which of the following theorists believe a decrease in marginal tax rates will increase the incentives to work and invest?

A)Keynesians.
B)Monetarists.
C)Supply-siders.

Question 46

If the absolute value of the tax elasticity of supply is 0.5,a tax increase of 10 percent will

A)Increase output by 5 percent and decrease tax revenues.
B)Increase output by 20 percent and decrease tax revenues.
C)Decrease output by 5 percent and increase tax revenues.

Question 47

Which of the following policies is a positive supply-side lever?

A)Human capital investment.
B)Lowering the minimum reserve requirement.
C)Open market operations.

Question 48

A reduction in marginal tax rates will yield larger tax revenues if the

A)Absolute value of the tax elasticity of supply is greater than 1.0.
B)Quantity supplied goes up when tax rates go up.
C)Tax revenues before a tax cut are larger than the revenues after the tax cut.

Question 49

A progressive tax system

A)Means higher marginal tax rates at higher income levels.
B)Provides more work incentives than a system with constant marginal tax rates.
C)Promotes more investment than a system with constant marginal tax rates.

Question 50

Which of the following policies is a positive supply-side lever?

A)Cutting the discount rate.
B)Increased government transfers.
C)Infrastructure development.

Question 51

If the absolute value of the tax elasticity of supply is 8,a tax cut of 0.5 percent should cause the output supplied to

A)Increase by 16 percent.
B)Decrease by 16 percent.
C)Increase by 4 percent.

Question 52

A decrease in marginal tax rates will cause ________ in investment and a ________ shift in AS.

A)an increase;rightward
B)a decrease;rightward
C)an increase;leftward

Question 53

It is likely that people will work less when the marginal tax rate is

A)91 percent.
B)30 percent.
C)26 percent.

Question 54

A decrease in marginal tax rates will cause entrepreneurship to _________ and AS to shift to the _______.

A)increase;left
B)increase;right
C)decrease;left

Question 55

A tax rebate

A)Has the same impact as a decrease in marginal tax rates.
B)Increases the incentive to work and invest.
C)Does not affect aggregate supply.

Question 56

A decrease in the marginal tax rates is likely to

A)Decrease investment.
B)Increase entrepreneurship.
C)Decrease work effort.

Question 57

Supply-siders believe that

A)Tax rebates shift the Phillips curve to the left.
B)Tax rebates have no effect on work effort.
C)Tax rebates provide greater incentives for work,production,and investment.

Question 58

If the absolute value of the tax elasticity of supply is 0.8,a tax decrease of 10 percent will

A)Increase output by 8 percent and decrease tax revenues.
B)Increase output by 12.5 percent and increase tax revenues.
C)Decrease output by 12.5 percent and increase tax revenues.

Question 59

A decrease in marginal tax rates will ________ after-tax profits and ________ more investment.

A)increase;encourage
B)increase;discourage
C)decrease;encourage

Question 60

The tax elasticity of supply is

A)Always equal to 1.
B)Always less than 1.
C)The percentage change in quantity supplied divided by the percentage change in tax rates.

Question 61

Which of the following contributes to stagflation?

A)Price ceilings.
B)Lowering marginal tax rates.
C)Discrimination that prevents the most productive employee from being hired.

Question 62

Ceteris paribus,tariffs and nontariff barriers on imported factor inputs result in

A)An increase in the price level and a decrease in unemployment.
B)An increase in the price level and an increase in unemployment.
C)A decrease in the price level and a decrease in unemployment.

Question 63

According to supply-side economists,government regulation of factor markets,such as OSHA,

A)Increases production costs and causes AS to decrease.
B)Increases production costs and causes AS to increase.
C)Decreases production costs and causes AS to decrease.

Question 64

The Personal Responsibility and Work Opportunity Act of 1996

A)Increased aggregate demand.
B)Increased aggregate supply.
C)Decreased aggregate demand.

Question 65

The "pay or play" approach means that

A)If the government does not pay off the deficit,deficit reduction will become the top political-economic priority.
B)If employers do not provide training activities,they must pay the government to do so.
C)Businesses must go along with the administration or pay the consequences.

Question 66

Supply-side economists advocate

A)A reduction in the incentives to save so that more income will be spent.
B)A reduction in structural unemployment through worker training.
C)The use of minimum wage laws to guarantee fair wages for workers.

Question 67

Structural unemployment is unemployment caused by

A)Insufficient spending in the economy.
B)A mismatch between the skills of job seekers and the requirements of available jobs.
C)Individuals who have the skills employers need and who live in the same location as employers but who are changing jobs.

Question 68

Employee benefits mandated by the government make it

A)Easier to achieve full employment with stable prices.
B)More difficult to achieve full employment with stable prices.
C)Easier to achieve stable prices but more difficult to achieve full employment.

Question 69

According to supply-side theory,which of the following would shift the aggregate supply curve leftward?

A)A higher minimum wage.
B)Government deregulation.
C)Lower marginal tax rates.

Question 70

According to supply-side economists,federal regulation of transportation services

A)Reduces AD.
B)Increase AD.
C)Reduces AS.

Question 71

If the absolute value of the tax elasticity of supply is 2.0,a tax increase of 10 percent will decrease output by

A)20 percent and increase tax revenues.
B)20 percent and decrease tax revenues.
C)5 percent and increase tax revenues.

Question 72

In 2003,tax rates on dividends and capital gains were ____,making investment ____.

A)increased;more profitable
B)increased;less profitable
C)reduced;more profitable

Question 73

Investment in human capital

A)Shifts the aggregate supply curve to the left.
B)Increases structural unemployment.
C)Increases labor productivity.

Question 74

A reduction in tariffs and quotas on imported goods shifts the

A)AD curve to the left.
B)AS curve to the left.
C)AS curve to the right.

Question 75

Tariffs and quotas on imported goods shift the

A)AS curve to the right.
B)AS curve to the left.
C)AD curve to the right.

Question 76

According to supply-side theory,which of the following would shift the aggregate supply curve leftward?

A)An increase in unemployment and welfare benefits.
B)Lower marginal tax rates.
C)Government deregulation.

Question 77

Ceteris paribus,a decrease in tariffs in both the factor market and the product market will cause

A)An increase in the price level and a decrease in unemployment.
B)An increase in the price level and an increase in unemployment.
C)A decrease in the price level and a decrease in unemployment.

Question 78

Supply-side economists favor tax incentives that

A)Encourage saving.
B)Increase the risk incurred by entrepreneurs.
C)Discourage infrastructure development.

Question 79

In 2001 and 2002,the Bush administration ________ personal and business taxes,which should cause AS to _______.

A)decreased;increase
B)increased;increase
C)decreased;decrease

Question 80

What impact do transfer payments have?

A)They reduce the incentive to work and shift AS to the right.
B)They reduce the incentive to work and shift AS to the left.
C)They increase the incentive to work and shift AS to the right.