Aggregate Demand and Phillips Curve Concepts

The video explores the trade-off between inflation and unemployment using the Phillips Curve model. It analyzes Federal Reserve data, discusses the impact of negative supply shocks, and reviews the classical aggregate demand and supply model. The video also covers critiques by Friedman and Phelps, and provides an interactive exercise to understand economic shifts.

What is the primary effect of an increase in aggregate demand on unemployment and inflation?

• Both unemployment and inflation fall

• Unemployment rises and inflation falls

• Unemployment falls and inflation rises

• Both unemployment and inflation rise

What is the result of a negative supply shock, such as a sudden rise in oil prices?

• Lower prices and higher unemployment

• Lower prices and lower unemployment

• Higher prices and lower unemployment

• Higher prices and higher unemployment

What does the short-run Phillips Curve illustrate?

• An inverse relationship between unemployment and inflation

• No relationship between unemployment and inflation

• A constant rate of unemployment regardless of inflation

• A direct relationship between unemployment and inflation

According to Milton Friedman, what happens to unemployment in the long run?

• It continues to decrease

• It returns to the natural rate of unemployment

• It becomes unpredictable

• It remains permanently low

What does the long-run Phillips Curve represent according to Friedman?

• A vertical line at the natural rate of unemployment

• A downward sloping curve

• An upward sloping curve

• A horizontal line at zero inflation

In the classical view, what is the nature of the long-run aggregate supply curve?

• Downward sloping

• Upward sloping

• Vertical at the natural rate of unemployment

• Horizontal at the natural rate of unemployment

What happens to the short-run Phillips Curve when there is a leftward shift in the short-run aggregate supply curve?

• It shifts leftward

• It shifts rightward

• It remains unchanged

• It becomes vertical

What is the impact of inflationary expectations on wage demands?

• Wage demands remain constant

• Wage demands become unpredictable

• Wage demands decrease

• Wage demands increase

What is the effect of a sudden fall in aggregate demand on the economy?

• Increase in inflation and decrease in unemployment

• Decrease in both inflation and unemployment

• Increase in both inflation and unemployment

• Decrease in inflation and increase in unemployment

How does the short-run Phillips Curve shift in response to inflationary expectations?

• It shifts rightward

• It shifts leftward

• It remains unchanged

• It becomes horizontal