AP Macro short and long run Phillips curve review
Review key concepts of the Phillips curve in both the short and long run, including shifts, trade-offs, and real-world implications for inflation and unemployment.
Quiz(48 questions)
1. What does the Short-Run Phillips Curve illustrate?
Terms in this Study Set(48)
Short-Run Phillips Curve(16)
What does the Short-Run Phillips Curve show?
The Short-Run Phillips Curve illustrates an inverse relationship between inflation and unemployment. As inflation increases, unemployment tends to decrease, and vice versa.
True or False: The Short-Run Phillips Curve is always downward sloping.
True. It is typically downward sloping, indicating the trade-off between inflation and unemployment in the short run.
What happens to unemployment during demand-pull inflation?
Unemployment decreases. Increased demand leads to higher prices and lower unemployment as firms hire more workers to meet the demand.
Fill in the blank: The Short-Run Phillips Curve is affected by __________.
expectations of inflation.
Cause → Effect: Rising inflation expectations lead to __________.
higher actual inflation.
How does the Short-Run Phillips Curve shift?
It can shift due to changes in inflation expectations, supply shocks, or policy changes affecting aggregate demand.
What is stagflation?
Stagflation occurs when inflation and unemployment rise simultaneously, violating the Short-Run Phillips Curve's trade-off.
True or False: The Short-Run Phillips Curve depicts a constant trade-off between inflation and unemployment.
False. The trade-off can change due to external factors like shifts in aggregate demand.
What is the effect of a decrease in aggregate demand on the Short-Run Phillips Curve?
It can lead to higher unemployment and lower inflation, causing movement along the curve.
Question: Why might the Short-Run Phillips Curve be steeper in certain situations?
The curve can be steeper if inflation expectations are high, leading to a weaker trade-off between inflation and unemployment.
How is the Short-Run Phillips Curve related to the business cycle?
During expansions, unemployment decreases and inflation rises; during recessions, the opposite occurs.
What role do policymakers play in the Short-Run Phillips Curve?
Policymakers can influence the trade-off through monetary and fiscal policies, aiming for lower unemployment or controlled inflation.
Fill in the blank: The Short-Run Phillips Curve represents a __________ relationship between inflation and unemployment.
negative.
What is the Short-Run Phillips Curve's implication for policy?
It suggests policymakers can reduce unemployment at the cost of increasing inflation in the short run.
Example: If inflation rises from 2% to 5%, what may happen to unemployment?
Unemployment may fall as businesses hire more due to increased demand.
What can cause a movement along the Short-Run Phillips Curve?
Changes in aggregate demand, such as a decrease in consumer spending or investment.
Long-Run Phillips Curve(16)
What shape is the Long-Run Phillips Curve?
Vertical. It indicates no trade-off between inflation and unemployment in the long run.
True or False: Long-Run Phillips Curve shifts with changes in inflation expectations.
True. Higher inflation expectations shift the curve right, indicating higher inflation at any unemployment level.
Fill in the blank: The Long-Run Phillips Curve is vertical at the natural rate of _____.
unemployment.
How does the Long-Run Phillips Curve differ from the Short-Run?
Long-Run is vertical; Short-Run is downward sloping, showing a trade-off between inflation and unemployment.
What is the natural rate of unemployment?
The rate of unemployment where inflation remains stable. It reflects a balance of labor market forces.
Cause → Effect: What happens if inflation expectations increase?
The Long-Run Phillips Curve shifts to the right, leading to higher inflation at the same unemployment rate.
True or False: The Long-Run Phillips Curve implies that monetary policy can reduce unemployment permanently.
False. It can only affect unemployment in the short run; in the long run, it returns to the natural rate.
What role do inflation expectations play in the Long-Run Phillips Curve?
They determine the position of the curve. Higher expectations shift it right.
Fill in the blank: The Long-Run Phillips Curve suggests that inflation is solely determined by _____.
monetary factors.
How does the Long-Run Phillips Curve relate to the economy's potential output?
It aligns with the full-employment output level; beyond this, inflation rises without reducing unemployment.
What is the implication of the Long-Run Phillips Curve for policymakers?
Policymakers cannot maintain lower unemployment without accelerating inflation in the long run.
What happens to unemployment in the Long-Run Phillips Curve if inflation rises?
Unemployment returns to the natural rate regardless of inflation levels.
How does the Long-Run Phillips Curve inform about economic stability?
It underscores the importance of managing inflation expectations to maintain stable economic conditions.
What does the Long-Run Phillips Curve imply about a stable economic environment?
Stable inflation expectations lead to a stable natural rate of unemployment.
What is the relationship between the Long-Run Phillips Curve and inflation targeting?
Inflation targeting helps anchor expectations, maintaining stability at the natural rate of unemployment.
Short example: If the natural rate of unemployment is 5%, what does the Long-Run Phillips Curve indicate?
Inflation can be stable even if the actual unemployment is at 5%, regardless of inflation rates.
Shifts and Determinants(16)
What can shift the Phillips curve?
Factors include: - Supply shocks - Changes in inflation expectations - Changes in labor market conditions.
True or False: Increased aggregate demand shifts the Phillips curve.
False. It moves along the curve, not shifts it.
Fill in the blank: A leftward shift in the Phillips curve indicates ______.
Higher inflation at every unemployment level.
What does a higher inflation expectation do?
It shifts the short-run Phillips curve to the right.
Cause → Effect: Oil price shock leads to _____?
Higher inflation and potential recession.
Comparison: Short-run vs. long-run Phillips curve shifts.
Short-run shifts due to demand/supply shocks; long-run shifts due to changes in expectations.
What happens when the economy experiences stagflation?
The Phillips curve shifts left, indicating higher inflation and unemployment simultaneously.
True or False: A decrease in productivity shifts the Phillips curve left.
True. It raises costs and inflation expectations.
Increased wage demands lead to ______.
Higher inflation expectations and a rightward shift of the Phillips curve.
What are adaptive expectations?
Expectations based on past inflation rates; they can lead to shifts in the Phillips curve.
How do government policies affect the Phillips curve?
Expansionary policies can shift the curve right by increasing demand.
Example: What happens if inflation rises unexpectedly?
The short-run Phillips curve shifts right as unemployment decreases.
Labor market tightness affects the Phillips curve by ______.
Shifting it left due to increased wage pressures.
What role does consumer confidence play?
High confidence can shift the curve left by boosting demand.
Fill in the blank: A recession typically causes ______.
A leftward shift in the Phillips curve.
How does globalization impact the Phillips curve?
It can shift the curve left by increasing competition and lowering prices.
Questions in this Study Set(48)
1. What does the Short-Run Phillips Curve illustrate?
2. What effect does an increase in oil prices have on the Phillips curve?
3. What is the shape of the Long-Run Phillips Curve?
4. If inflation expectations rise, what is the likely effect on the Short-Run Phillips Curve?
5. Which factor is NOT typically a determinant in shifting the short-run Phillips curve?
6. True or False: The Long-Run Phillips Curve can shift due to changes in inflation expectations.
7. True or False: The Short-Run Phillips Curve can be influenced by external economic factors.
8. When inflation expectations increase, what is the impact on the short-run Phillips curve?
9. Fill in the blank: The Long-Run Phillips Curve is vertical at the natural rate of _____.
10. During a recession, what typically happens to the unemployment rate according to the Short-Run Phillips Curve?
11. What happens to the Phillips curve during a recession?
12. How does the Long-Run Phillips Curve differ from the Short-Run?
13. What is stagflation?
14. Fill in the blank: An unexpected rise in inflation leads to ______.
15. What is typically considered the natural rate of unemployment?
16. What effect does a decrease in aggregate demand have on the Short-Run Phillips Curve?
17. How do adaptive expectations influence the Phillips curve?
18. If inflation expectations increase, what happens to the Long-Run Phillips Curve?
19. Which of the following is NOT a reason the Short-Run Phillips Curve might shift?
20. Which situation would likely cause a leftward shift in the Phillips curve?
21. True or False: In the long run, monetary policy can permanently reduce unemployment.
22. If the Short-Run Phillips Curve is steep, what does this indicate about inflation expectations?
23. True or False: Government expansionary policies shift the Phillips curve to the left.
24. What determines the position of the Long-Run Phillips Curve?
25. What are policymakers attempting to achieve in relation to the Short-Run Phillips Curve?
26. Which factor increases the likelihood of a rightward shift in the Phillips curve?
27. Fill in the blank: The Long-Run Phillips Curve suggests that inflation is solely determined by _____.
28. What happens to unemployment during demand-pull inflation?
29. What role does consumer confidence play in shifting the Phillips curve?
30. How does the Long-Run Phillips Curve relate to a country's potential output?
31. Which of the following scenarios illustrates movement along the Short-Run Phillips Curve?
32. Which scenario represents a possible cause of stagflation?
33. What is a key implication of the Long-Run Phillips Curve for monetary policymakers?
34. Fill in the blank: The Short-Run Phillips Curve represents a __________ relationship between inflation and unemployment.
35. What happens to the Phillips curve when labor market conditions tighten?
36. What happens to the unemployment rate in the Long-Run Phillips Curve if inflation increases?
37. How does increased government spending typically affect the Short-Run Phillips Curve?
38. What is the impact of globalization on the Phillips curve?
39. How does the Long-Run Phillips Curve affect economic stability?
40. True or False: The Short-Run Phillips Curve assumes a constant trade-off between inflation and unemployment.
41. Which of the following would NOT shift the long-run Phillips curve?
42. What does the Long-Run Phillips Curve suggest about stable inflation expectations?
43. If inflation rises from 3% to 6%, what is the expected impact on unemployment in the short run?
44. How do inflation expectations alter the economy's operating conditions?
45. What role does inflation targeting play in relation to the Long-Run Phillips Curve?
46. Which of the following best describes the Short-Run Phillips Curve?
47. Which factor is likely to cause a rightward shift in the short-run Phillips curve?
48. Which of the following statements is NOT true regarding the Long-Run Phillips Curve?
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