According to economists who explain the Phillips curve, a decline in the unemployment rate causes higher rates of inflation because
a. workers are concerned about protecting their jobs and so they accept smaller wage increases
b. during periods of GDP growth, firms find it easier to pay higher wage rates and charge higher prices without worrying about losing markets
c. firms decrease production and compete less aggressively for workers during periods of inflation
d. workers feel less secure about their jobs and demand higher pay raises
e. the Laffer curve comes into effect
B
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To the casual observer it is often difficult to understand how a company would spend several million dollars building a plant or other structure and then simply stop and abandon the project midway. How can this be justified on economic grounds?
What will be an ideal response?
Assume that full-employment real GDP is Y = $1,200 billion, the current equilibrium real GDP is Y = $1,600 billion, and the MPC = 0.8 . In order to bring the economy to a full-employment real GDP,
a. a recessionary gap must be bridged by increasing aggregate expenditures by $80 billion. b. an inflationary gap must be bridged by cutting aggregate expenditures by $80 billion. c. nothing is needed to bring the economy into full employment equilibrium. d. a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion. e. an inflationary gap must be bridged by cutting aggregate expenditures by $400 billion.