Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived
What will be an ideal response?
The short-run Phillips curve has a negative slope, indicating that there is a trade-off between inflation and unemployment. When aggregate demand rises, inflation and real GDP both rise in the short run. As real GDP rises above potential GDP, unemployment begins to fall below its natural rate. The result is higher inflation and a lower rate of unemployment.
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Moving along a country's PPF, a reason opportunity costs increase is that
A) unemployment decreases as a country produces more and more of one good. B) unemployment increases as a country produces more and more of one good. C) technology declines as a country produces more and more of one good. D) some resources are better suited for producing one good rather than the other. E) technology must advance in order to produce more and more of one good.
Marginal utility theory predicts that when income increases a
A) person's total utility will not change. B) person might increase the consumption of some normal goods and decrease the consumption of other normal goods. C) person's consumption of normal goods will increase. D) None of the above answers is correct because marginal utility theory does not address how demand changes in response to changes in income.