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Topic Quiz 1: The Phillips Curve 10 questions · explanations appear as you answer
1. The Short-Run Phillips Curve (SRPC) illustrates: A A direct relationship between inflation and unemployment B An inverse relationship between inflation and unemployment C No relationship between inflation and unemployment D The relationship between GDP and the price level only
2. The Long-Run Phillips Curve (LRPC) is: A Downward sloping B Vertical, at the natural rate of unemployment C Horizontal, at zero inflation D Upward sloping
3. If the central bank pursues expansionary monetary policy, increasing AD, this is best represented on the Phillips Curve as: A A shift of the SRPC to the right B A movement along the SRPC toward lower unemployment and higher inflation C A shift of the LRPC D No change on the Phillips Curve
4. If workers and firms suddenly expect significantly higher inflation in the future, the SRPC would most likely: A Shift to the right B Shift to the left C Stay in place, with only a movement along it D Become vertical
5. Stagflation refers to: A High inflation and low unemployment occurring together B High inflation and high unemployment occurring together C Low inflation and low unemployment occurring together D A stable price level with no unemployment
6. Which of the following would most likely cause stagflation? A A large tax cut that boosts consumer spending B A sudden, sharp increase in global oil prices C An increase in government spending on infrastructure D A decrease in the money supply
7. According to the adaptive expectations theory, after AD rises and pushes the economy temporarily toward lower unemployment and higher inflation (moving from point A to point B), what eventually happens in the long run? A The economy stays permanently at point B B Workers and suppliers demand higher wages/prices to catch up with the higher actual inflation, pushing output and employment back down to the natural rate — but now at the new, higher inflation rate C Inflation falls back to its original rate automatically D Unemployment falls to zero permanently
8. A rightward shift of the SRPC most directly corresponds to which change in the AD-AS model? A An increase in AD B A decrease in AD C A decrease in SRAS D An increase in LRAS
9. Why does the short-run tradeoff between inflation and unemployment disappear in the long run? A Government policy makes it disappear B Because expectations eventually adjust to match actual inflation, so any inflation rate becomes consistent with the natural rate of unemployment C Because unemployment always falls to zero D Because inflation always falls to zero
10. If the central bank consistently and successfully uses expansionary policy to keep unemployment permanently below the natural rate, adaptive expectations theory predicts: A This will work indefinitely with no consequences B Inflation will accelerate over time, as expectations continually chase actual inflation without unemployment staying below the natural rate for long C Unemployment will fall to zero permanently D The SRPC will become horizontal