Answer the following statements true (T) or false (F)
1. The policy implication of the long-run Phillips Curve is that, while stimulative policies may work to reduce unemployment in the short run, the only effect of such policies in the long run is to raise inflation.
2. Based on the long-run Phillips Curve, any rate of inflation is compatible in the long run with the natural rate of unemployment.
3. The adjustment mechanism that brings the economy to its long-run aggregate supply has to do with inflation-expectations, whereas the adjustment to the long-run Phillips curve has to do with wage flexibility.
4. Supply-side economists contend that aggregate supply is the relevant policy factor in influencing the price level and real output in an economy.
5. Supply-side economists recommend higher marginal tax rates to increase aggregate supply and real output.
1. T
2. T
3. F
4. T
5. F
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If inflationary expectations increase, we can infer that: a. unemployment is above the natural rate
b. the economy is not on the long-run Phillips curve. c. the short-run Phillips curve is shifting to the left. d. output is below potential GDP. e. the unemployment rate is at the natural rate.
________ corresponds to lower output and ________ corresponds to higher output.
A. Demand-pull inflation; stagflation B. Cost-push inflation; demand-pull inflation C. Demand-pull inflation; cost-push inflation D. Stagflation; cost-push inflation