## Chapter Sixteen: Module Quiz -- The Phillips Curve

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1. The Phillips Curve is a graphical depiction of the

positive relationship between inflation and output.
negative relationship between inflation and the CPI.
negative relationship between inflation and unemployment.
negative relationship between unemployment and output.
None of the above

2. The long-run Phillips Curve is vertical which indicates

that in the long-run, there is no tradeoff between inflation and unemployment.
that in the long-run, there is no tradeoff between inflation and the price level.
that in the long-run, the economy returns to a 4 percent level of inflation.
None of the above.

3. If the Aggregate Demand curve shifts to the left,

the economy moves up and to the left along the short-run Phillips Curve.
the economy moves down and to the right on the short-run Phillips Curve.
the economy moves up the long-run Phillips Curve.
there is no impact on the Phillips Curve.

4. When the economy is on the long-run Phillips Curve, we know that

we are at full employment.
the unemployment rate is at its natural rate.
any rate of inflation could be consistent with the current rate of unemployment.
All of the above.

5. Given the equation for the Phillips Curve:
inflation rate = b(U* - U) + Pe,
if b = 0.5, U* = 5.0, U = 6.0, and Pe = 3, then the current rate of inflation is

2.0%
2.5%
3.0%
3.5%
None of the above

6. From the equation above in question five, we know that the rate of inflation in the long run would be

2.5%
3.0%
3.5%
4.0%
None of the above

7. The short-run Phillips Curve shifts upward when

the Aggregate Demand curve shifts to the right.
the Aggregate Supply curve shifts to the right.
there is a fall in inflation expectations.
there is a rise in inflation expectations.

8. The short-run Phillips curve seemed to break down once again in the 1990s. A possible explanation for this breakdown is

an increase in inflation expectations.
an increase in labor productivity.
a surge in oil prices.
none of the above.

9. An oil shock can cause stagflation, a period of higher inflation and higher unemployment. When this happens, the economy moves to a point to the northeast of where it currently is. After the economy has moved to the northeast, the Federal Reserve can reduce that inflation without having to worry about causing more unemployment.

True
False

10. A shift in the Aggregate Supply curve to the right will result in a move to a point that is southwest of where the economy is currently at.

True
False