Chapter 29 - Inflation and Phillips curves

Question 1

Define the short-run Phillips curve:

Answer 1

The relationship between inflation and unemployment, with expected inflation rate and natural unemployment held constant.

Question 2

What moves us along a short-run phillips curve?

Answer 2

Increased inflation moves us left, decreased inflation moves us right

Question 3

What causes an upwards and downwards shift of the short-run phillips curve?

Answer 3

Decreased expected inflation => downwards shift
Increased expected inflation => upwards shift of

Question 4

What causes a left/right shift of the short-run and long-run phillips curve?

Answer 4

Increase in natural unemployment => right shift
Decrease in natural unemployment => left shift

Question 5

Define the long-run phillips curve, and give its shape:

Answer 5

The relationship between inflation and unemployment, when actual inflation = expected inflation

Question 6

Describe demand-pull inflation:

Answer 6

Inflation caused by anything that increases AD

Question 7

Describe cost-push inflation:

Answer 7

Inflation caused by an increase in firms’ costs, caused by 2 main factors:

1) Increase in money wage rate

2) Increased prices of raw materials