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Long Run Phillips Curve quiz

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  • What does the long run Phillips curve illustrate?
    It shows the relationship between unemployment and inflation when the economy is at potential GDP, using all resources efficiently.
  • What is the natural rate of unemployment in the long run?
    It is the unemployment rate when the economy is at potential GDP, typically around 4%, including frictional and structural unemployment.
  • How is the natural rate of unemployment related to NAIRU?
    For this class, they are treated as the same; both represent the unemployment rate at which inflation is stable and has no tendency to increase or decrease.
  • What does NAIRU stand for?
    NAIRU stands for Non-Accelerating Inflation Rate of Unemployment.
  • What does the long run aggregate supply (LRAS) curve look like?
    The LRAS curve is vertical, indicating that potential GDP is constant regardless of changes in aggregate demand.
  • Does the natural rate of unemployment mean everyone is employed?
    No, it means some unemployment persists due to frictional and structural factors, even when the economy is at potential GDP.
  • What happens to the price level in the long run at potential GDP?
    The price level can vary, but the natural rate of unemployment remains at about 4%.
  • How does the long run Phillips curve differ from the short run Phillips curve?
    The long run Phillips curve is vertical, showing a fixed natural rate of unemployment regardless of inflation, unlike the downward-sloping short run curve.
  • What does a vertical long run Phillips curve indicate about inflation and unemployment?
    It indicates that any level of inflation corresponds to the natural rate of unemployment, with no tendency for inflation to accelerate or decelerate at this rate.
  • What types of unemployment are included in the natural rate?
    Frictional and structural unemployment are included in the natural rate.
  • What is the typical value for the natural rate of unemployment used in this lesson?
    It is typically around 4%.
  • Can aggregate demand affect the natural rate of unemployment in the long run?
    No, in the long run, the natural rate of unemployment remains constant regardless of aggregate demand.
  • What happens to inflation at the natural rate of unemployment?
    Inflation remains stable and does not tend to accelerate or decelerate.
  • Why is there still unemployment at potential GDP?
    Because of frictional and structural unemployment, some people are always unemployed even when resources are used efficiently.
  • What does the long run Phillips curve tell us about unemployment in the long run?
    It tells us that unemployment is fixed at the natural rate when the economy is at potential GDP.