#1
What does the Phillips Curve describe?
The relationship between inflation and unemployment
ExplanationInflation and unemployment have an inverse relationship.
#2
In the short run, according to the Phillips Curve theory, what typically happens when unemployment decreases?
Inflation increases
ExplanationLower unemployment leads to higher inflation in the short run.
#3
What is the main criticism of the Phillips Curve?
It does not account for supply-side shocks
ExplanationIt overlooks external factors like supply-side shocks.
#4
According to the expectations-augmented Phillips Curve, what happens when workers and firms adjust their expectations of inflation?
The short-run Phillips Curve shifts upward
ExplanationAdjusting expectations can lead to a shift in the short-run Phillips Curve.
#5
What is the long-term implication of a country consistently operating below its potential GDP?
Decreased inflation
ExplanationConsistently operating below potential GDP results in lower inflation.
#6
Which policy instrument is primarily used to counteract high inflation?
Contractionary monetary policy
ExplanationContractionary monetary policy is used to combat high inflation.
#7
What is the primary assumption behind the Phillips Curve theory?
Constant level of inflation
ExplanationThe Phillips Curve theory assumes a constant level of inflation.
#8
Which economist is credited with introducing the concept of the Phillips Curve?
A.W. Phillips
ExplanationA.W. Phillips introduced the Phillips Curve.
#9
According to the natural rate hypothesis, what happens in the long run when unemployment falls below the natural rate?
Inflation increases
ExplanationBelow the natural rate, unemployment leads to inflation in the long run.
#10
What is the term used to describe the situation when policymakers face a trade-off between inflation and unemployment in the short run?
Stagflation
ExplanationPolicymakers face a trade-off between inflation and unemployment in the short run, termed as stagflation.
#11
Which of the following best describes the relationship between the Phillips Curve and the concept of potential output?
Potential output is the level of output where the Phillips Curve intersects with the natural rate of unemployment
ExplanationPotential output intersects with the natural rate of unemployment on the Phillips Curve.
#12
What is the main factor that could cause the Phillips Curve to shift to the right?
A decrease in aggregate demand
ExplanationA decrease in aggregate demand shifts the Phillips Curve to the right.