4.2.3.4 Possible conficts NOTES

What is a negative output gap?

• When actual output exceeds potential output

• When actual output falls below potential output

• When inflation rates exceed unemployment rates

• When government spending is reduced

What typically happens when there is a positive output gap?

• Unemployment levels decrease

• Unemployment levels increase

• Firms reduce production

• Inflationary pressures are subdued

What does the short-run Phillips Curve illustrate?

• The impact of high unemployment on economic growth

• The stability of inflation in the long run

• The inverse relationship between unemployment and inflation

• The direct relationship between unemployment and inflation

What shape does the Phillips Curve take in the long run?

• Horizontal

• S-shaped

• Circular

• Vertical or L-shaped

What is the natural rate of unemployment?

• The minimum rate of unemployment achievable under current conditions

• The rate of unemployment when the economy is in recession

• The level of unemployment consistent with stable inflation

• The highest achievable rate of unemployment

What might expansionary fiscal policies in the short run lead to?

• Lower inflation

• Higher unemployment

• Decreased government spending

• Higher inflation

What is suggested by the long-run Phillips Curve regarding unemployment and inflation?

• Unemployment permanently reduces inflation

• There is a long-term trade-off between unemployment and inflation

• Changes in unemployment do not have a permanent effect on inflation

• High unemployment leads to high inflation

Which policy is likely to be implemented to reduce unemployment during economic downturns?

• Increase in interest rates

• Reduction in government spending

• Contractionary monetary policies

• Expansionary fiscal policies

What long-run policy conflicts might policymakers face?

• Between economic growth and maintaining price stability

• Between reducing government spending and increasing taxes

• Between high inflation and high unemployment

• Between educational reforms and healthcare improvements

What does a balanced approach in the short run involve to address policy conflicts?

• Implementing only supply-side reforms

• Focusing solely on demand-side policies

• Combining both demand-side and supply-side policies

• Ignoring inflation to focus on unemployment