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The Phillips curve illustrates the positive relationship between inflation and unemployment.

If inflation is 4 per cent and unemployment is 6 per cent, the misery index is 2 per cent.

In the short run, an increase in aggregate demand increases prices and output, and decreases unemployment.

When unemployment is below the natural rate the labour market is unusually tight, putting pressure on wages and prices to rise.

An increase in price expectations shifts the Phillips curve upward and makes the inflation unemployment trade-off less favourable.

An increase in the money supply increases inflation and permanently decreases unemployment.

In the long run, the unemployment rate is independent of inflation and the Phillips curve is vertical at the natural rate of unemployment.

When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

The natural rate hypothesis suggests that, in the long run, unemployment returns to its natural rate, regardless of inflation.

An adverse supply shock, such as an increase in the price of imported oil, shifts the Phillips curve upward and makes the inflation unemployment trade-off less favourable.

A decrease in unemployment benefits reduces the natural rate of unemployment and shifts the long-run Phillips curve to the right.

An increase in aggregate demand temporarily reduces unemployment, but after people raise their expectations of inflation, unemployment returns to the natural rate.

A sudden monetary contraction moves the economy up a short-run Phillips curve, reducing unemployment and increasing inflation.

If people have rational expectations, an announced monetary contraction by the central bank that is credible could reduce inflation with little or no increase in unemployment.

If the sacrifice ratio is four, a reduction of inflation from 9 per cent to 5 per cent requires a reduction in output of 8 per cent.

The misery index, which some commentators suggest measures the health of the economy, is the sum of the

The original Phillips curve illustrates the

The Phillips curve is an extension of the model of aggregate supply and aggregate demand because, in the short run, an increase in aggregate demand increases prices and

Along a short-run Phillips curve, a higher rate of

If, in the long run, people adjust their price expectations so that all prices and incomes move proportionately to an increase in the price level, then the long-run Phillips curve

According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment,

An increase in expected inflation

Which of the following would shift the long-run Phillips curve to the right?

When actual inflation exceeds expected inflation,

A decrease the price of foreign oil

The natural rate hypothesis argues that

Refer to Exhibit 6. If people in the economy expect inflation to be 3 per cent and inflation is 3 per cent, the economy is operating at point

Refer to Exhibit 6. If people in the economy expect inflation to be 6 per cent but inflation turns out to be 3 per cent, the economy is operating at point

Refer to Exhibit 6. Suppose the economy is in long-run equilibrium at point E. A sudden increase in government spending should move the economy in the direction of point

Refer to Exhibit 6. Suppose the economy is operating at point D. As people revise their price expectations,

Refer to Exhibit 6. Suppose the economy is operating in long-run equilibrium at point E. An unexpected monetary contraction will move the economy in the direction of point

Refer to Exhibit 6. Suppose the economy is operating in long-run equilibrium at point E. In the long run, a monetary contraction will move the economy in the direction of point

If people have rational expectations, a monetary policy contraction that is announced and is credible could

If the sacrifice ratio is five, a reduction in inflation from 7 per cent to 3 per cent would require

If a country’s policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate, the long-run result would be