If government uses fiscal policy to restrain costpush inflation, we can expect: the unemployment rate to rise the unemployment rate to fall 6) the aggregate demand curve to shift rightward @ taxerate declines and increases in government spending An adverse (negative) aggregate supply shock: can cause stagflation automatically shifts the aggregate demand curve rightward causes the Phillips Curve to shift leftward and downward G) can be caused by a boost in the rate of growth of productivity In the last half of the 19905, the usual short-run tradeoff between inflation and unemployment did not arise because (think internetf networking): the U.S. personal savings rate rose the Fed held interest rates constant the Federal government balanced its budget 6) productivity (and thus aggregate supply) grew faster than previously The short run in macroeconomics is a period in which nominal wages: Change as the price level changes Remain unresponsive as the price level stays constant Remain unresponsive as the price level changes 6) Change as the price level stays constant If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur, then the: Economy is operating in the short-run B Economy has entered the long-run C Unemployment rate will increase D Inflation rate will decreaseIn the extended AD-AS model, demand-pull inflation occurs because of: An increase in AD B An increase in AS C A decrease in AD D A decrease in ASThe traditional short run Phillips Curve shows the: Direct relationship between the rate of inflation and the unemployment rate B Direct relationship between the short-run and long-run aggregate supply C Inverse relationship between the rate of inflation and the rate of unemployment D Inverse relationship between the short-run and long-run aggregate supplyIn the long run, stability for the economy is achieved only at: A high rate of profit The natural rate of inflation The efficiency traderoff between unemployment and inflation The natural rate of unemployment Which is a reason given by supply-side economists as to why tax cuts should increase aggregate supply? Saving will increase and promote investment Risk taking will decrease as opportunity cost falls 6) Productivity will fall as incentives to work decrease @ Government spending will fall increasing unemployment Answer the next question on the basis of the following diagram. Refer to the diagram. Stagflation would be represented by: INOAUON Rate of inflation (%) b 0 1 2 3 4 5 6 7 8 9 Unemployment rate (%) Q Zoom A a movement along the curve from point a to point b B a movement along the curve from point b to point a C a rightward shift of the curve D a leftward shift of the curve