5.1 The Phillips Curve

• What economic idea underlies the inverse relationship in the Phillips Curve?

  Full employment increases wages
• The Phillips Curve is an economic model that describes the inverse relationship between inflation and unemployment
• What is the original Phillips Curve based on?

  Inverse inflation-unemployment
• What type of relationship does the original Phillips Curve suggest between inflation and unemployment?

  Inverse relationship
• What does the vertical shape of the long-run Phillips Curve indicate?

  No long-run tradeoff
• Order the key characteristics of the short-run and long-run Phillips Curves

  1️⃣ Short-Run Phillips Curve: Inverse relationship between inflation and unemployment

  2️⃣ Long-Run Phillips Curve: Vertical, no long-run tradeoff
• When unemployment is low, employers must offer higher wages to attract workers, leading to increased costs and inflation.


  True
• The original Phillips Curve is based on the idea that higher wages increase costs and prices.

  True
• Policymakers can permanently reduce unemployment by increasing inflation in the long run.

  False
• What is the natural rate of unemployment?

  The level of unemployment the economy gravitates towards
• Relying solely on the Phillips Curve is practical for effective economic policy-making.

  False
• What does the Phillips Curve describe the relationship between?

  Inflation and unemployment
• The Phillips Curve shows that as unemployment decreases, inflation tends to increase
• The Phillips Curve is an economic model that shows an inverse relationship between inflation and unemployment
• The long-run Phillips Curve shows that there is no long-run tradeoff between inflation and unemployment
• The Phillips Curve is an economic model that describes the inverse relationship between inflation and unemployment
• The Phillips Curve shows that as unemployment decreases, inflation tends to increase
• The original Phillips Curve suggests that as unemployment decreases, inflation tends to increase
• The short-run Phillips Curve shows that as unemployment decreases, inflation tends to increase
• What does the long-run Phillips Curve show about the relationship between inflation and unemployment?

  No long-run tradeoff
• The natural rate of unemployment exists when the labor market is in equilibrium
• What are some limitations of the Phillips Curve?

  Short-run focus and disregard for supply-side factors
• The original Phillips Curve suggests that higher wages lead to increased costs and higher prices

  True
• The short-run Phillips Curve holds in the long-run

  False
• Policymakers can permanently reduce unemployment by allowing higher inflation according to the long-run Phillips Curve

  False
• What economic model describes the inverse relationship between inflation and unemployment?

  The Phillips Curve
• What does the original Phillips Curve demonstrate?

  Inverse relationship between inflation and unemployment
• What does the short-run Phillips Curve illustrate?

  Inverse relationship between inflation and unemployment
• The short-run Phillips Curve is useful for long-term economic planning.

  False
• The economy always returns to its natural rate of unemployment regardless of inflation levels in the long run.


  True