6) If the government raises taxes (T) then

A) planned expenditures fall

B) equilibrium output falls

C) the IS curve shifts to the left

D) all of the above

E) none of the above

15) Which statement(s) is (are) consistent with the observed positive relationship between

inflation and the output gap?

A) If output rises above its potential level, the unemployment rate falls and firms will raise

wages and prices more rapidly.

B) In the short run, the AS curve is upward sloping.

C) Through Okun's law, the negative relationship between the output and unemployment gaps

allows the modern Phillips curve to be translated into the AS curve.

D) all of the above

E) none of the above

16) It is generally agreed that

A) more flexible wages and prices mean that inflation responds more quickly to a non-zero

output gap

B) the more sticky wages and prices are, the more difficult it is to tell the difference between the

short run and long run aggregate supply curves

C) if wages and prices are sticky, aggregate output is always at its potential level

D) all of the above

21) In the long run

A) the aggregate supply is vertical with respect to the current unemployment rate

B) the Phillips curve is vertical at a given level of expected inflation

C) with no outside forces, the economy tends to move toward and stay at the potential output

level consistent with the natural rate of unemployment

D) the aggregate demand curve is vertical when actual and expected inflation are equal

E) inflation tends toward its natural rate, which is about 3 percent.

23) On the graph above, consider a point (A)

on

the aggregate supply curve and

above

the

aggregate demand curve. All else the same, from this point the most likely adjustment is that

A) the inflation rate will fall and output will rise

B) the inflation rate will rise and output will fall

C) inflation will fall because output is greater than the quantity demanded

D) the aggregate demand curve will shift to the right until a new rate of inflation is reached at

which aggregate demand equals aggregate supply

E) no change is likely since this is an equilibrium