Economics 252 – Review Questions Chapter 16 – Supply Side Policy: Short Run Options
Refer to Figure 1 in answering Questions (1) to (4).
Figure 1
(1) In Figure 1, which Panel refers to the monetarist's view of the effect of an increase in the quantity of money on the economy?
(a) Panel A
(b) Panel B
(c) Panel C
(d) Panel D
(2) In Figure 1, which Panel refers to a Phillips curve?
(a) Panel A
(b) Panel B
(c) Panel C
(d) Panel D
(3) In Figure 1, choose the Panel that Keynesians would use to illustrate the effects of stimulative fiscal policy on the economy?
(a) Panel A
(b) Panel B
(c) Panel C
(d) Panel D
(4) In Figure 1, choose the Panel that illustrates the effects of supply-side policies designed to increase the capacity of the economy.
(a) Panel A
(b) Panel B
(c) Panel C
(d) Panel D
(5) Phillips developed a curve which showed the tradeoff between:
(a) full employment and interest rates.
(b) unemployment rates and inflation rates.
(c) the natural rate of unemployment and the exchange rate.
(d) unemployment rates and the trade balance (exports minus imports).
Utilize Figure 2 in answering Question (6).
Figure 2
(6) In Figure 2, an increase in aggregate demand could cause a:
(a) movement from point A to point B.
(b) movement from point B to point A.
(c) rightward shift of the curve.
(d) leftward shift of the curve.
Utilize Figure 3 in answering Questions (7) and (8).
Figure 3
(7) In Figure 3, a shift from AS(3) to AS(2) could be caused by:
(a) a decrease in government spending.
(b) a decrease in the money supply.
(c) an increase in the marginal tax rate.
(d) an increase in the investment in human capital.
(8) In Figure 3, a shift from AS(1) to AS(2) could be caused by:
(a) an increase in money supply.
(b) an increase in government expenditures.
(c) an increase in worker training that improves worker productivity.
(d) Any of the above.
Refer to Figure 4 to answer Questions (9) and (10).
Figure 4
(9) In Figure 4, if the economy is initially in equilibrium at P(3) and Q(1), the appropriate policy to move the economy to an equilibrium at P(1) and Q(2) would be to:
(a) increase the investment in human capital.
(b) reduce the marginal tax rate.
(c) reduce government regulation.
(d) Do any of the above.
(10) In Figure 4, if the economy is initially in equilibrium at P(3) and Q(1), which of the following policies would move the economy to an equilibrium at P(2) and Q(3)?
(a) Monetary policy alone.
(b) A combination of fiscal and monetary. policy.
(c) Supply side policy alone.
(d) A combination of monetary policy and supply side policy.
(11) If a tax cut of 10 percent causes the output supplied to increase by 5 percent, the tax elasticity of supply is:
(a) -0.5
(b) -2.0
(c) –5.0
(d) –10.0
(12) Which of the following is a supply-side lever?
(a) Human capital investment.
(b) Lowering the minimum reserve requirment.
(c) Open market operations.
(d) Income transfers.
(13) 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 decrease in marginal tax rates.
(c) A tax rebate.
(d) A decrease in international trade.
(14) Supply side policies are designed to achieve:
(a) a leftward shift of the Phillips curve.
(b) a rightward shift of the Phillips curve.
(c) a leftward shift of the aggregate supply curve.
(d) a lower inflation rate but a higher unemployment rate.
(15) Which of the following are possible causes of or are associated with stagflation?
(a) Workers push costs upward and thereby initiate inflation.
(b) A rightward shift of the aggregate supply curve.
(c) A leftward shift of the aggregate supply curve.
(d) There are major new discoveries of oil that sharply reduce world-wide oil and energy prices.