The modern view of the Phillips curve suggests that
a. when inflation is less than anticipated, unemployment will fall below the natural rate.
b. when inflation is steady, actual unemployment will equal the natural rate of unemployment.
c. systematic demand stimulus policies will be unable to affect prices in the long run.
d. there will be a trade-off between inflation and unemployment in the long run.
B
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The real rate of interest equals 5% and the expected rate of inflation equals 2%. The nominal rate of interest equals
A) 2%. B) 3%. C) 5%. D) 7%.
Answer the following statements true (T) or false (F)
1. As the economy expands, it requires less and less investment. 2. Keynes described a horizontal short-run aggregate supply curve when output can be increased by using unemployed resources. 3. As income increases, the absolute level of planned consumption will increase. 4. Keynes recommended the use of government deficit spending to overcome widespread unemployment. 5. A composite aggregate supply curve is horizontal at low levels of output, then upward sloping for higher levels of output until output reaches capacity and the AS curve becomes vertical.