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Short Run Phillips Curve quiz #1 Flashcards

Short Run Phillips Curve quiz #1
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  • What relationship does the Phillips curve illustrate in macroeconomics?
    The Phillips curve illustrates the inverse relationship between unemployment and inflation, showing that as inflation increases, unemployment decreases, and vice versa.
  • What happens to the price level and unemployment when aggregate demand increases in the short run?
    When aggregate demand increases, the price level rises (causing inflation) and unemployment falls due to higher GDP and the need for more workers.
  • How does a decrease in aggregate demand affect unemployment and inflation?
    A decrease in aggregate demand leads to lower inflation (or a lower price level) and higher unemployment because less output is produced and fewer workers are needed.
  • On the short run Phillips curve graph, what variables are placed on the x-axis and y-axis?
    The x-axis represents the unemployment rate, and the y-axis represents the inflation rate.
  • Why is it difficult for policymakers to achieve both low inflation and low unemployment simultaneously?
    Because the Phillips curve shows an inverse relationship between inflation and unemployment, reducing one often leads to an increase in the other.
  • If the price level rises from 100 to 106 in one year, what is the inflation rate for that year?
    The inflation rate is 6% for that year.
  • What does a downward-sloping short run Phillips curve indicate about the relationship between inflation and unemployment?
    It indicates that as inflation decreases, unemployment increases, and as inflation increases, unemployment decreases.
  • How is the need for more workers related to changes in GDP according to the Phillips curve discussion?
    When GDP increases, more workers are needed to produce the additional output, which lowers unemployment.
  • In the example given, what were the unemployment rates associated with low and high aggregate demand?
    With low aggregate demand, unemployment was 7%; with high aggregate demand, unemployment was 4%.
  • How does the short run Phillips curve differ from other economic curves in terms of its axes?
    Unlike most economic curves that use price and quantity, the short run Phillips curve uses inflation rate and unemployment rate as its axes.