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- Subject
- The Phillips Curveeconomics-mcqs › the-phillips-curve
- Published
- 27 May 2019
- Last updated
- 28 May 2026
Refer to Exhibit 6. If the economy is currently at point (D), how will adjustments in people's inflation expectations affect the Phillips curve?
Multiple choice question for The Phillips Curve. Select an option, then review the explanation below.
Explanation
When people update their inflation expectations, the short-run Phillips curve shifts to reflect these new expectations. However, the long-run Phillips curve represents the natural rate of unemployment and is vertical; it can shift leftward if structural changes improve the economy's potential output. Therefore, in this scenario, the long-run Phillips curve moves to the left.
More The Phillips Curve MCQs
Practice related questions from the same subject.
- 1.What is the likely effect of a credible and announced monetary policy tightening if individuals form rational expectations?
- 2.Refer to Exhibit 6. If the economy is initially at long-run equilibrium at point E, which point will the economy move toward following an unanticipated monetary tightening?
- 3.Refer to Exhibit 6. If the economy is initially at long-run equilibrium at point E, what point will the economy move toward following a sudden rise in government expenditure?
- 4.Based on Exhibit 6, if individuals anticipate a 3% inflation rate and the actual inflation rate is also 3%, at which point is the economy functioning?
- 5.What is the effect of a reduction in the price of imported oil on the short-run Phillips curve?