The Phillips Curve

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1.What is the likely effect of a credible and announced monetary policy tightening if individuals form rational expectations?

Lower inflation with minimal or no rise in unemploymentHigher inflation accompanied by a significant drop in unemploymentAn increase in inflation with little to no reduction in unemploymentA decline in inflation but with a substantial increase in unemployment

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?

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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?

It causes the short-run Phillips curve to shift downward, resulting in a less advantageous trade-off between unemployment and inflation.It shifts the short-run Phillips curve upward, improving the trade-off between unemployment and inflation.It moves the short-run Phillips curve upward, making the unemployment-inflation trade-off more favorable.It shifts the short-run Phillips curve downward, enhancing the trade-off between unemployment and inflation.

6.Which factor would cause the long-run Phillips curve to shift rightward?

A rise in the minimum wageAn increase in inflation expectationsA surge in the cost of imported oilA boost in aggregate demandA decrease in government spending

7.According to the Phillips curve, what is the short-term effect on inflation if policymakers implement an expansionary policy to reduce unemployment?

Inflation will rise in the economyInflation will fall in the economyInflation remains stable if price expectations do not changeNone of the above

8.What relationship does the short-run Phillips curve illustrate?

An increase in inflation corresponds to a decrease in unemployment.Faster output growth is linked to reduced unemployment.Rising inflation is connected to higher unemployment levels.Greater output growth is related to increased unemployment.

9.What does the original Phillips curve depict?

The inverse relationship between inflation and unemploymentThe trade-off between economic output and unemploymentA direct correlation between output levels and unemployment ratesA positive association between inflation and unemployment

10.What is the long-term consequence if a country's policymakers persistently apply expansionary monetary policy to keep unemployment below its natural level?

A rise in the overall production outputA reduction in the unemployment percentageAn escalation in inflation ratesAll of the above outcomes