The Phillips Curve – MCQs

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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

11.Given a sacrifice ratio of five, how much output must be reduced to lower inflation from 7% to 3%?

An output decrease of 20 percentAn output decrease of 5 percentAn output decrease of 15 percentAn output decrease of 35 percent

12.Refer to Exhibit 6. Assume the economy is initially at long-run equilibrium at point E. Over time, how will a monetary contraction affect the economy's position on the graph?

It will shift towards point FIt will move in the direction of point aIt will progress towards point HIt will head towards point INo change in position

13.Refer to Exhibit 6. If the economy is currently at point (D), how will adjustments in people's inflation expectations affect the Phillips curve?

The short-run Phillips curve will move toward the curve reflecting a 3% inflation expectation.The short-run Phillips curve will adjust toward the curve corresponding to a 9% inflation expectation.The short-run Phillips curve will shift toward the curve associated with a 6% inflation expectation.The long-run Phillips curve will shift leftward.None of the above changes will occur.

14.Refer to Exhibit 6. If individuals in the economy anticipate an inflation rate of 6% but the actual inflation rate is only 3%, at which point is the economy operating?

15.What does the natural rate hypothesis propose about unemployment over the long term?

Over time, the unemployment rate converges back to the natural rate, independent of inflation.Unemployment consistently remains beneath the natural rate.Unemployment persistently stays above the natural rate.Unemployment is constantly equal to the natural rate.

16.What happens to unemployment when the actual inflation rate surpasses the expected inflation rate?

The unemployment rate matches the natural unemployment rateIndividuals lower their future inflation expectationsThe unemployment rate rises above the natural unemployment rateThe unemployment rate falls below the natural unemployment rate

17.How does a rise in expected inflation affect the short-run Phillips curve and the trade-off between unemployment and inflation?

Causes the short-run Phillips curve to shift downward, making the unemployment-inflation trade-off worse.Results in an upward shift of the short-run Phillips curve, improving the unemployment-inflation trade-off.Leads to a downward shift in the short-run Phillips curve, enhancing the unemployment-inflation trade-off.Pushes the short-run Phillips curve upward, causing the unemployment-inflation trade-off to deteriorate.No significant change occurs to the short-run Phillips curve or the unemployment-inflation trade-off.

18.When individuals fully adapt their price expectations over time so that wages and prices rise proportionally with the overall price level, what is the shape of the long-run Phillips curve?

19.Why is the Phillips curve considered an extension of the aggregate supply and demand model in the short term when aggregate demand rises?

It leads to a reduction in unemploymentIt causes a slowdown in economic growthIt results in higher unemployment ratesIt lowers the inflation rate

20.What does the misery index, often used by analysts to gauge economic well-being, represent?

The combined total of economic growth rate and inflation percentageThe aggregate of the natural unemployment rate and the current unemployment rateThe sum of inflation rate and the central bank’s interest rateThe total of the unemployment rate plus the inflation rate