EC 202 Ch 15

In terms of aggregate supply, a period in which nominal wages and other resource prices are unresponsive to price level changes is called the:

• Long run

• Short run

• Immediate market period

• Very long run

Other things equal, a decrease in the price level will:

• Shift the aggregate supply curve to the left

• Shift the aggregate demand curve to the left

• Cause a movement up the short-run aggregate supply curve

• Cause a movement down an aggregate supply curve

The long-run aggregate supply curve is vertical:

• Because the rate of inflation is steady in the long run

• Because resource prices eventually rise and fall with product prices

• Because product prices always increase at a faster rate than resource prices

• Only when the supply of money increases at the same rate as real GDP

The extended AD-AS model:

• Distinguishes between short-run and long-run aggregate demand

• Explains inflation but not recession

• Includes G and Xn whereas the simple AD_AD model does not

• Distinguishes between short-run and long-run aggregate supply

If government uses fiscal policy to restrain cost-push inflation, we can expect:

• The unemployment rate to rise

• The unemployment rate to fall

• The aggregate demand curve to shift rightward

• Tax-rate declines and increases in government spending

The traditional Phillips Curve suggests a tradeoff between:

• Price level and income equality

• Unemployment and income equality

• The level of unemployment and price level stability

• Economic growth and full employment

Stagflation refers to:

• An increase in inflation accompanied by a decrease in real output and employment

• A decline in price level accompanied by increases in real output and employment

• A simultaneous increase in real output and price level

• A simultaneous reduction in real output and the price level

A rightward shift of the traditional Phillips Curve would suggest that:

• The productivity of labor increased

• The rate of inflation is now higher at each rate of unemployment

• Cost-push inflation decreased

• The rate of inflation is now lower at each rate of unemployment

Which of the following is a true statement?

• There is a long-run tradeoff between inflation and unemployment

• There is no tradeoff between inflation and unemployment in the long-run

• The short-run Phillips Curve is horizontal

• The long-run Phillips Curve is horizontal

The natural rate of unemployment for this economy is:

• 3%

• 5%

• 7%

• 9%