Question : According to the Phillips curve, a decrease in unemployment is likely to result in:
Option 1: Higher inflation
Option 2: Lower inflation
Option 3: No change in inflation
Option 4: Deflation
Correct Answer: Higher inflation
Solution : The correct answer is (a) Higher inflation.
The original Phillips curve suggested an inverse relationship between inflation and unemployment. When the unemployment rate decreases, indicating a tighter labor market with more people employed, it tends to put upward pressure on wages and production costs. As firms face higher labor costs, they may pass on those increased costs to consumers in the form of higher prices, leading to inflationary pressures.
Question : The long-run Phillips curve implies that in the long run, changes in the unemployment rate will:
Option 1: Have no effect on the inflation rate
Option 2: Lead to higher inflation
Option 3: Lead to lower inflation
Option 4: Cause deflation
Question : The Phillips curve shows the relationship between:
Option 1: Inflation and unemployment
Option 2: GDP and inflation
Option 3: GDP and unemployment
Option 4: Interest rates and inflation
Question : The short-run Phillips curve suggests that there is a trade-off between:
Question : A recession is characterized by:
Option 1: High inflation and high unemployment
Option 2: Low inflation and high unemployment
Option 3: High inflation and low unemployment
Option 4: Low inflation and low unemployment
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