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Long Run Phillips Curve quiz

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  • What does the long-run Phillips curve illustrate?
    It shows the relationship between unemployment and inflation when the economy is at potential GDP, with all resources efficiently used.
  • At what unemployment rate does the long-run Phillips curve typically occur?
    It occurs at the natural rate of unemployment, which is usually around 4%.
  • What types of unemployment are included in the natural rate of unemployment?
    The natural rate includes frictional and structural unemployment.
  • How does inflation affect unemployment in the long run according to the Phillips curve?
    In the long run, changes in inflation do not affect the natural rate of unemployment.
  • What is the shape of the long-run Phillips curve and why?
    It is vertical because unemployment remains constant at the natural rate regardless of inflation.
  • What does the vertical long-run Phillips curve emphasize about market equilibrium?
    It emphasizes that the economy is at long-run equilibrium with unemployment at its natural rate.
  • What is NAIRU and how does it relate to the natural rate of unemployment?
    NAIRU stands for the non-accelerating inflation rate of unemployment and is treated as the same as the natural rate for this class.
  • What happens to inflation at the natural rate of unemployment?
    At the natural rate, inflation has no tendency to increase or decrease; it remains stable.
  • Does reaching potential GDP mean zero unemployment?
    No, it means unemployment is at the natural rate, not zero.
  • How does the long-run Phillips curve differ from the short-run Phillips curve?
    The long-run curve is vertical, while the short-run curve is downward sloping.
  • What does the long-run Phillips curve suggest about the trade-off between inflation and unemployment?
    It suggests there is no long-run trade-off between inflation and unemployment.
  • In the ADAS model, where is the long-run aggregate supply curve located?
    It is vertical at potential GDP.
  • Can the inflation rate vary in the long run without affecting unemployment?
    Yes, inflation can fluctuate while unemployment stays at the natural rate.
  • What is the typical value used for the natural rate of unemployment in this class?
    It is typically set at 4%.
  • Why is there always some unemployment even at potential GDP?
    Because frictional and structural unemployment always exist as people change jobs or industries.