Figure 8-5

-In Figure 8-5 above,a crucial assumption that goes into positioning the SP curve in the bottom diagram is that
A)the wage rate is 1.00.
B)expected inflation is zero.
C)expected inflation is 5 percent.
D)the AD curve is AD₁.
E)the shift of AD₁ to AD₂ will be repeated continuously.

Question

Figure 8-5
 
-In Figure 8-5 above,a crucial assumption that goes into positioning the SP curve in the bottom diagram is that
A)the wage rate is 1.00. 
B)expected inflation is zero. 
C)expected inflation is 5 percent. 
D)the AD curve is AD₁. 
E)the shift of AD₁ to AD₂ will be repeated continuously.

Quizplus · Accepted Answer

The positioning of the SP (Short-run Phillips) curve assumes that expected inflation is zero, as it helps in determining the relationship between inflation and unemployment without the complicating factor of changing inflation expectations.

Figure 8-5 -In Figure 8-5 Above,a Crucial Assumption That Goes into Positioning