1. Unemployment rates above the target rate of unemployment lead to: a) an upwar
ID: 1165720 • Letter: 1
Question
1. Unemployment rates above the target rate of unemployment lead to:
a) an upward shift of the short-run Phillips curve.
b) a downward shift of the short-run Phillips curve.
c) a rightward shift of the long-run Phillips curve.
d) an leftward shift of the long-run Phillips curve.
2. Currently if inflation is 2% and the goods inflation target is 2.5%, policymakers
a) congratulate themselves for coming in under their target.
b) are unhappy because they have come in under their target.
c) are indifferent because they don’t have an inflation target.
d) are indifferent because they are more interested in asset inflation.
3. If there is inflation
a) the unit of account function of money is improved
b) the unit of account function of money is undermined.
c) the distributional function of money is improved
d) the distributional function of money is undermined.
Explanation / Answer
1) For a given inflation rate, if unemployment rate exceeds its target rate, then it must be true that the short run PC has shifted upwards or to the right. Under that condition, for a given inflation rate, unemployment rate will be higher. Option a)
2) Option c) There is no reason to be happy or worried because it is the target for goods inflation and not overall inflation.
3) Option b) With inflation value of money is reduced so its ability to use as a yardstick to measure goods and services is impeded. Hence its unit of account function is worsened.
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