Q: Which equation correctly calculates the real wage given a nominal wage and a price level?

$$\text{Real wage} = \frac{\text{Nominal wage}}{\text{Price level}} \times 100$$

Question 1

Which of the following best describes the short-run Phillips curve?

Accepted Answer

A curve showing the short-run relationship between the unemployment rate and the inflation rate.

Question 2

Suppose the Bank of Canada implements an expansionary monetary policy that is unexpected by workers and firms. According to the Phillips curve, what is the likely short-run effect?

Accepted Answer

Unemployment falls and inflation rises.

Question 3

If the expected inflation rate is 3% and the actual inflation rate turns out to be 6%, what happens to the real wage and unemployment according to the Phillips curve framework?

Accepted Answer

The real wage is lower than expected and unemployment falls.

Question 4

Which equation correctly calculates the real wage given a nominal wage and a price level?

Accepted Answer

$$	ext{Real wage} = \frac{	ext{Nominal wage}}{	ext{Price level}} 	imes 100$$

Question 5

Why did the stable trade-off between inflation and unemployment observed in the 1950s and 1960s break down in the long run?

Accepted Answer

Because workers and firms adjusted their expectations of inflation, causing the short-run Phillips curve to shift.

Question 6

What is the natural rate of unemployment?

Accepted Answer

The unemployment rate that exists when the economy is at potential GDP.

Question 7

Which of the following would cause a shift in the short-run Phillips curve?

Accepted Answer

A change in expectations about future inflation.

Question 8

If the Bank of Canada wants to permanently lower the inflation rate, what must it do according to the Phillips curve analysis?

Accepted Answer

Announce and achieve lower inflation targets, allowing expectations to adjust.

Question 9

What is the implication of a vertical long-run Phillips curve?

Accepted Answer

In the long run, monetary policy can affect inflation but not unemployment.

Question 10

Which of the following best describes rational expectations?

Accepted Answer

Expectations formed by using all available information about an economic variable.

Question 11

Suppose the Bank of Canada announces a credible policy to reduce inflation. What is the likely effect on the short-run Phillips curve if workers and firms have rational expectations?

Accepted Answer

The short-run Phillips curve shifts left immediately.

Question 12

Which of the following is NOT a reason the natural rate of unemployment might change?

Accepted Answer

A temporary increase in inflation.

Question 13

What is the main criticism of the rational expectations hypothesis in the context of the Phillips curve?

Accepted Answer

Wages and prices do not adjust quickly enough, and expectations are not always rational.

Question 14

Which of the following best describes a real business cycle model?

Accepted Answer

A model that focuses on real (not monetary) explanations for fluctuations in real GDP.

Question 15

If the nominal wage is $50 and the price level is 123.6, what is the real wage?

Accepted Answer

$$\frac{50}{123.6} 	imes 100 = 40.45$$

Question 16

Which of the following statements is TRUE regarding disinflation and deflation?

Accepted Answer

Disinflation refers to a significant reduction in the inflation rate, while deflation is a negative inflation rate.

Question 17

During a supply shock, such as the OPEC oil crisis, what typically happens to the short-run Phillips curve?

Accepted Answer

It shifts to the right.

Question 18

If the Bank of Canada wants to reduce unemployment in the short run, what is a likely consequence according to the Phillips curve?

Accepted Answer

Inflation will increase.

Question 19

What is leverage, and why is it important in the context of monetary policy?

Accepted Answer

Leverage is a measure of how much debt an investor assumes, increasing risk by magnifying gains and losses.

Question 20

Which of the following is a common misconception about the Phillips curve?

Accepted Answer

As long as the short-run Phillips curve is not vertical, the central bank can improve both inflation and unemployment simultaneously.

Inflation, Unemployment, and Bank of Canada Policy: The Phillips Curve and Modern Macroeconomic Analysis

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