Phillips Curve

The Phillips Curve is a graphical depiction of the

• positive relationship between inflation and output.

• negative relationship between inflation and the CPI.

• negative relationship between inflation and unemployment.

• negative relationship between unemployment and output.

The long-run Phillips Curve is vertical which indicates

• that in the long-run, there is no tradeoff between inflation and unemployment.

• that in the long-run, there is no tradeoff between inflation and the price level.

• that in the long-run, the economy returns to a 4 percent level of inflation.

• None of the above.

The short-run Phillips Curve shifts upward when

• the Aggregate Demand curve shifts to the right.

• the Aggregate Supply curve shifts to the right.

• there is a fall in inflation expectations.

• there is a rise in rational expectations.

If the Phillips Curve is vertical in the long run, then an increase in the money supply from year to year will _______ the unemployment rate and will _________inflation rate.

• increase; increase

• increase; not change

• not change; increase

• not change; not change

If inflationary expectations increase, the Phillips curve will

• shift to the right

• shift to the left

• become vertical

• become upward sloping

The long-run Phillips curve

• is vertical at the natural unemployment rate and its position is independent of monetary policy.

• will shift to the right as a result of expansionary monetary policy.

• will shift vertically to a higher inflation rate and expected inflation as a result of expansionary monetary policy.

• will shift to the left as a result of expansionary monetary policy.

According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment ?

• The economy will experience an increase in inflation

• The economy will experience a decrease in inflation

• Inflation will be unaffected if price expectations are unchanging

• None of these answers

Along a short-run Phillips curve____

• a higher rate of inflation is associated with a lower unemployment rate

• a higher rate of growth in output is associated with a lower unemployment rate

• a higher rate of inflation is associated with a higher unemployment rate

• a higher rate of growth in output is associated with a higher unemployment rate.

The critical macroeconomic policy implication of a vertical long-run Phillips Curve is that..

• inflation is everywhere and always a monetary phenomenon.

• big inflations will be stopped by big recession.

• money illusion is the source of the unemployment in the long-run.

• demand policies cannot move the actual unemployment rate permanently away from its equilibrium level.

Analysis of the short-run Phillips curve suggests that policymakers who want to reduce unemployment in the short run should ______ aggregate demand at a cost of generating ______ inflation.

• increase; higher

• increase; lower

• decrease; higher

• decrease; lower