Answered: Moving along the short-run Phillips…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Moving along the short-run Phillips curve, if ________ increases, then ________ decreases.

unemployment; the expected inflation rate

unemployment; the price level

inflation; the price level

inflation; real GDP

inflation; unemployment

According to Okun's Law, when the natural employment rate is 6 percent and potential GDP is $10 trillion, then when actual employment is 7 percent, real GDP is

$9.8 trillion.

$10.1 trillion.

$10.2 trillion.

$9.9 trillion.

$8 trillion.

The long-run Phillips curve shows the relationship between

inflation and interest rates at full employment.

aggregate demand and aggregate supply at full employment.

inflation and unemployment at full employment.

aggregate demand and interest rates at full employment.

the price level and real GDP when the economy is not at full employment.

If the expected inflation rate changes, the long-run Phillips curve ________, and the short-run Phillips curve ________.

does not shift; does not shift

shifts rightward; does not shift

does not shift; shifts upward

shifts rightward; shifts upward

shifts rightward; shifts downward

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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