Problem 1
Distinguish between the short run and the long run as they relate to macroeconomics. Why is the distinction important?
Problem 2
Which of the following statements are true? Which are false? Explain why the false statements are untrue. LO18.1 a. Short-run aggregate supply curves reflect an inverse relationship between the price level and the level of real output. b. The long-run aggregate supply curve assumes that nominal wages are fixed. c. In the long run, an increase in the price level will result in an increase in nominal wages.
Problem 3
Suppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to try to achieve the lower rate. Use the concept of the short-run Phillips Curve to explain why these policies might at first succeed. Use the concept of the long-run Phillips Curve to explain the longrun outcome of these policies. \(L O 18.4\)
Problem 4
What do the distinctions between short-run aggregate supply and long-run aggregate supply have in common with the distinction between the short-run Phillips Curve and the long-run Phillips Curve? Explain. LO18.4
Problem 5
What is the Laffer Curve, and how does it relate to supply-side economics? Why is determining the economy's location on the curve so important in assessing tax policy? LO18.5
Problem 6
Why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less, earn less, and pay less income tax under the same circumstance? \(L O 18.5\)
