5.2: The Phillips Curve

Question 1

What does the Phillips Curve show?

Answer 1

The trade off between inflation and unemployment

Question 2

What is the inflation and unemployment like when the economy is overheating?

Answer 2

Low unemployment and high inflation

Question 3

What is the inflation and unemployment like when the economy is in recession?

Answer 3

Unemployment is high but inflation is low

Question 4

What is stagflation on the Phillips Curve?

Answer 4

When both inflation and unemployment increases.

Question 5

What are the tradeoffs in the Long Run Phillips Curve (LRPC)

Answer 5

There is none

Question 6

Why is the LRPC, vertical ?

Answer 6

It represents the Natural Rate of Unemployment

Question 7

What happens to the Phillips Curve, when AD increases?

Answer 7

Unemployment decreases, but inflation increases

Question 8

What happens to the Phillips Curve, when AD decreases?

Answer 8

Inflation decreases, but unemployment increases

Question 9

What happens to the Phillips Curve, when SRAS decreases?

Answer 9

Both inflation and unemployment increases

Question 10

What happens to the Phillips Curve, when SRAS increases?

Answer 10

Both inflation and unemployment decreases

Question 11

A Short run Phillips curve shows the inverse relationship between

Answer 11

inflation and unemployment

Question 12

An increase in aggregate demand will cause which of the following ?

A Movement along the Phillips Curve
B Long run Phillips curve to become horizontal
C The short-run Phillips curve to shift left
D The long run Phillips curve to shift left
E The long run Phillips curve to shift right

Answer 12

A

Question 13

According to the Phillips Curve, lower inflation rates are associated with

A. Higher unemployment rates
B Higher gov. spending
C. Larger budget deficit
D. Greater labor-force participation rates
E. Smaller labor-force participation rates

Answer 13

a