Reading 25: U.S. Inflation, Unemployment, and Business Cycl black, during, Business, following, statements

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Q1. Geno Potosi is delivering a lecture on the Phillips curve model, during which he makes the following two statements:

Statement 1: If expected inflation is less than actual inflation, the short-run Phillips curve shows that the unemployment rate will increase.

Statement 2: The negative relationship between the inflation rate and unemployment rate does not hold in the long run because the expected inflation rate adjusts to the actual performance of inflation.

Are Potosi’s two statements CORRECT?

          Statement 1                         Statement 2

 

A) Correct                                       Incorrect

B) Incorrect                                     Correct

C) Correct                                       Correct

Q2. The Phillips curve shows the trade-off between:

A)    inflation and unemployment.

B)    the rate of change in the money supply and the rate of change in employment.

C)    aggregate demand and the real wage rate.

Q3. What would be the impact of an unanticipated increase in aggregate demand on an economy’s rate of unemployment, rate of inflation, and the short-run Phillips curve (SRPC)?

     Unemployment      Inflation                                                               SRPC

 

A) Decrease                            Decrease                                   Downward shift of curve

B) Increase                              Increase                                     Downward movement along curve

C) Decrease                            Increase                                     Upward movement along curve

Q4. A shift in the long-run Phillips curve represents a change in the:

A)    expected inflation rate.

B)    sensitivity of unemployment to changes in inflation.

C)    natural rate of unemployment.

kinan

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