Chapter 18: Current Issues in Macro Theory and Policy

Question 1

What does the Phillips Curve depict?

Answer 1

Trade-off between unemployment and inflation

Question 2

What caused “stagflation”?

Answer 2

The forward shift of the supply curve causes a lower supply

Question 3

Does an increase in wages necessarily cause the “unit labor costs” to rise?

Answer 3

No, not if productivity rises even more than wages, unit labor costs go down, and the benefits outweigh the costs

Question 4

What did supply-side economists propose to end stagflation?

Answer 4

Raise supply, & shift it rightward to end stagflation

Question 5

Did Reaganomics support more regulation?

Answer 5

No, Reaganomics supports deregulation

Question 6

Did Arthur Laffer believe that higher taxes would always cause the tax revenue to rise?

Answer 6

No, Laffer believes that at some point, taxes increases would be too high to incentivize people.

Question 7

Did corporate tax cuts mostly benefit the low-income households?

Answer 7

No, corporate tax cuts benefited the rich, corporations, or higher-income people.