Explain how the short-run and long-run Phillips curves are related
What will be an ideal response?
The short-run Phillips curve is the relationship between the inflation rate and the unemployment rate when the natural unemployment rate and the expected inflation rate remain constant. The long-run Phillips curve is the relationship between the inflation rate and the unemployment rate when the economy is at full employment. The short-run Phillips curve is downward sloping, indicating that if the expected inflation rate and natural unemployment rate do not change, a higher inflation rate decreases the unemployment rate. The long-run Phillips curve is a vertical line illustrating that in the long run, the economy at full employment can have any inflation rate. The short-run Phillips curve intersects the long-run Phillips curve at the expected inflation rate. A change in the expected inflation rate shifts the short-run Phillips curve but has no effect on the long-run Phillips curve. An increase in the natural unemployment rate shifts both the short-run and the long-run Phillips curve.
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The Plaza Accord of 1985 announces that the
A) G-5 countries will intervene in the foreign exchange market to bring about a dollar appreciation. B) G-7 countries will intervene in the foreign exchange market to bring about a dollar depreciation. C) G-5 countries will intervene in the foreign exchange market to bring about a dollar depreciation. D) G-7 countries will intervene in the foreign exchange market to bring about a DM depreciation. E) G-5 countries will not intervene in the foreign exchange market unless the dollar needs to appreciate.
If a mutual fund outperforms the market in one period, evidence suggests that this fund is
A) highly likely to consistently outperform the market in subsequent periods due to its superior investment strategy. B) likely to under-perform the market in subsequent periods to average its overall returns. C) not likely to consistently outperform the market in subsequent periods. D) not likely to outperform the market in any subsequent period.