What is the effect of supply-side inflation on the short-run Phillips curve?
What will be an ideal response?
The short-run Phillips curve is drawn on the assumption that fluctuations in the economy’s real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases. It therefore embodies the concept of a trade-off between inflation and unemployment. If instead fluctuations in the economy’s real growth rate are caused by variations in aggregate supply, including leftward shifts, then higher rates of inflation will be associated with higher rates of unemployment, and lower rates of inflation will be associated with lower rates of unemployment. In effect, the short-run Phillips curve will assume an upward slope.
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Other things equal, the level of bilateral trade between two countries will increase as their GDP:
a. rises. b. falls. c. stays the same. d. becomes less equal.
During which of the following decades has the output ratio been staying closest to zero?
A) 1960s B) 1970s C) 1980s D) 1990s