Question 1

On the modern Phillips curve,the initial impact of government policies to stimulate the economy is shown by ________.

Accepted Answer

The modern Phillips curve suggests that stimulating the economy initially leads to higher inflation and lower unemployment, represented by an upward movement along the curve.

Question 2

According to the accelerationist Phillips curve,________.

Accepted Answer

According to the accelerationist Phillips curve, inflation will change so long as an unemployment gap persists. This means that as unemployment decreases, inflation will increase, and as unemployment increases, inflation will decrease. The theory also implies that expectations adjust continually to the latest information, but it does not state that increases in inflation cause the unemployment gap to widen.

Question 3

Based on the data in this table, 
If the natural rate of unemployment is steady at 7 percent,and,in period four,there is no price shock and unemployment is 8 percent,then the inflation rate in period 4 will be ________ percent.

Accepted Answer

The answer of Based on the data in this table,...

Question 4

If expectations about inflation are adaptive,they are ________.

Accepted Answer

Adaptive expectations about inflation imply that people form their expectations based on past experiences of inflation, which is consistent with the notion of sticky prices, as adjustments in expectations and consequently in prices do not happen immediately but rather gradually over time.

Question 5

If expectations about inflation are adaptive,they are ________.

Accepted Answer

Adaptive expectations are based on past experiences and are backward-looking. They may not take into account all available information and tend to change slowly as individuals adjust their expectations over time. Therefore, all of the above options are true.

Question 6

________ will cause a movement along the modern Phillips curve.

Accepted Answer

A movement along the modern Phillips curve is caused by changes in the unemployment rate, not by changes in factors like oil prices, import prices, or wage agreements.

Question 7

As wages and prices become more sticky ________.

Accepted Answer

When wages and prices become more sticky, the short-run Phillips curve gets flatter because wages and prices do not adjust quickly to changes in unemployment. This also means wages become less responsive to unemployment deviations from the natural rate. Additionally, it becomes easier to differentiate the short-run from the long-run Phillips curve, as the long-run curve is vertical (indicating no trade-off between inflation and unemployment) while the short-run curve shows a trade-off that is more pronounced when wages and prices are flexible.

Question 8

Given the accelerationist Phillips curve Δπ = - 0.7 (U - 5)+ ρ,suppose that inflation has increased from 8 percent to 10 percent.If the unemployment rate is 4 percent,then the price shock is ________.

Accepted Answer

Given the accelerationist Phillips curve formula Δπ = -0.7(U - 5) + ρ, where Δπ is the change in inflation, U is the unemployment rate, and ρ is the price shock. The change in inflation (Δπ) is from 8% to 10%, which is a 2% increase. The unemployment rate (U) is 4%. Substituting these values into the equation gives 2 = -0.7(4 - 5) + ρ, which simplifies to 2 = 0.7 + ρ. Solving for ρ gives ρ = 1.3%.

Question 9

Based on the data in this table, 
If the inflation rate in period zero had been 3 percent,then the accelerationist Phillips curve is ________.

Accepted Answer

The answer of Based on the data in this table,...

Question 10

As wages and prices become more sticky ________.

Accepted Answer

Sticky wages mean that wages do not adjust quickly to changes in unemployment, making them less responsive to deviations from the natural rate.

Question 11

On the modern Phillips curve,the initial impact of productivity improvements that lower the costs of production is shown by ________.

Accepted Answer

The modern Phillips curve shows a downward shift in response to productivity improvements that lower the costs of production. This leads to lower inflation rates for any unemployment rate, as firms are able to produce goods and services more efficiently and at a lower cost, reducing the need to increase prices. Therefore, option (C) is the correct choice.

Question 12

Given the accelerationist Phillips curve Δπ = - 0.3 (U - 6)+ ρ,suppose that inflation in the preceding period was 3 percent,unemployment is 6 percent,and there is a price shock of 2 percent.The current inflation rate is ________.

Accepted Answer

Using the accelerationist Phillips curve equation:

Δπ = - 0.3(U - 6)+ ρ

We know that inflation in the preceding period was 3 percent, so ρ = 0.03. 
Also, unemployment rate is 6 percent.

With the given price shock of 2 percent, the change in inflation will be:

Δπ = - 0.3(6 - 6) + 0.03 + 0.02 = 0.05 or 5 percent.

Therefore, the current inflation rate is 5 percent, which is option C).

Question 13

As wages and prices become more flexible ________.

Accepted Answer

As wages and prices become more flexible, inflation becomes more responsive to unemployment deviations from the natural rate because the economy can adjust more quickly to changes in demand and supply conditions.

Question 14

Given the accelerationist Phillips curve Δπ = - 0.3 (U - 6)+ ρ,suppose that inflation in the preceding period was 3 percent,unemployment is 7 percent,and there is no price shock.The current inflation rate is ________.

Accepted Answer

Using the accelerationist Phillips curve:

Δπ = -0.3(U - 6) + ρ

where Δπ is the change in inflation rate, U is the unemployment rate, and ρ is the price shock.

Since there is no price shock (ρ = 0), we can substitute the values for inflation and unemployment into the equation:

Δπ = -0.3(7 - 6) + 0.03
Δπ = -0.3 + 0.03
Δπ = -0.27

This means that inflation is falling by 0.27 percentage points. To find the current inflation rate, we subtract this decrease from the previous inflation rate:

Current inflation rate = Previous inflation rate - Δπ
Current inflation rate = 3% - (-0.27%)
Current inflation rate = 3.27%

Therefore, the current inflation rate is 2.7 percent (Choice A).

Question 15

If wages and prices become extremely flexible ________.

Accepted Answer

If wages and prices become extremely flexible, there would be no trade-off between inflation and unemployment, and the economy would quickly adjust to changes in supply and demand. As a result, unemployment can hardly deviate from the natural rate, and it becomes difficult to differentiate the short-run from the long-run Phillips curve. Therefore, all of the above statements are true.

Question 16

If expectations about inflation are adaptive,they are ________.

Accepted Answer

Adaptive expectations are based on past inflation rates. They assume that people make predictions about future inflation based on their experiences of past inflation. Therefore, the answer is (C) based on past inflation.

Question 17

On the modern Phillips curve,the initial impact of an increase in the world price of steel is shown by ________.

Accepted Answer

An increase in the world price of steel is a cost-push factor that would increase production costs for industries relying on steel. This leads to higher prices overall, causing the Phillips curve to shift upwards, indicating higher inflation rates for any given level of unemployment.

Question 18

An example of a price shock is ________.

Accepted Answer

A price shock refers to a sudden and significant change in the price of a commodity or service, often due to external factors. The options provided (A, B, C) do not directly describe scenarios that would lead to a sudden and significant change in prices, but rather involve factors that could affect the economy in various ways without necessarily causing a direct and immediate shock to prices.

Question 19

On the modern Phillips curve,the beginning of a recession is shown by ________.

Accepted Answer

The beginning of a recession is typically characterized by higher unemployment rates, which on the Phillips curve is shown by a downward movement along the curve. This movement reflects the inverse relationship between unemployment and inflation depicted by the Phillips curve.

Question 20

Which of the following might cause an upward shift of the modern Phillips curve?

Accepted Answer

An increase in oil prices or an increase in the price of imports both lead to an increase in the cost of production, which causes businesses to increase prices to maintain their profit margins. This leads to an upward shift of the Phillips curve. Similarly, if wage agreements include compensation for inflation, then workers will demand higher wages to maintain their purchasing power, causing an increase in production costs and a shift of the Phillips curve upwards. Hence, all three options - A, B, and C - would cause an upward shift of the modern Phillips curve.

Quiz 11: Aggregate Supply and the Phillips Curve

On the modern Phillips curve,the initial impact of government policies to stimulate the economy is shown by ________.

According to the accelerationist Phillips curve,________.

Based on the data in this table, If the natural rate of unemployment is steady at 7 percent,and,in period four,there is no price shock and unemployment is 8 percent,then the inflation rate in period 4 will be ________ percent.

If expectations about inflation are adaptive,they are ________.

If expectations about inflation are adaptive,they are ________.

________ will cause a movement along the modern Phillips curve.

As wages and prices become more sticky ________.

Given the accelerationist Phillips curve Δπ = - 0.7 (U - 5) + ρ,suppose that inflation has increased from 8 percent to 10 percent.If the unemployment rate is 4 percent,then the price shock is ________.

Based on the data in this table, If the inflation rate in period zero had been 3 percent,then the accelerationist Phillips curve is ________.

As wages and prices become more sticky ________.

On the modern Phillips curve,the initial impact of productivity improvements that lower the costs of production is shown by ________.

Given the accelerationist Phillips curve Δπ = - 0.3 (U - 6) + ρ,suppose that inflation in the preceding period was 3 percent,unemployment is 6 percent,and there is a price shock of 2 percent.The current inflation rate is ________.

As wages and prices become more flexible ________.

Given the accelerationist Phillips curve Δπ = - 0.3 (U - 6) + ρ,suppose that inflation in the preceding period was 3 percent,unemployment is 7 percent,and there is no price shock.The current inflation rate is ________.

If wages and prices become extremely flexible ________.

If expectations about inflation are adaptive,they are ________.

On the modern Phillips curve,the initial impact of an increase in the world price of steel is shown by ________.

An example of a price shock is ________.

On the modern Phillips curve,the beginning of a recession is shown by ________.

Which of the following might cause an upward shift of the modern Phillips curve?