What is the Phillips curve? What does the Phillips curve suggest about optimal policy?
What will be an ideal response?
The Phillips curve shows a trade-off between unemployment and inflation. With the unemployment rate on the horizontal axis and inflation on the vertical, the Phillips curve is pictured as a downward sloping curve. If the curve is a suitable representation of the economy, in the short run policy makers can choose the combination of inflation and unemployment that they want.
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According to economic theory, state governments
A) will be biased toward chronic budget deficits. B) will act in the public interest. C) will act in the national interest. D) will do all of the above. E) will do none of the above.
Which of the following will be observed if the U.S. federal government reduces fiscal spending, keeping other things constant?
a. The aggregate demand curve will shift to the right. b. The aggregate expenditure in the economy will decrease. c. The economy will approach potential GDP. d. The marginal propensity to consume will increase. e. The average price level will increase.
The monopolistic competitor
A. produces a good or service that has no close substitutes. B. is usually a small firm. C. has very little competition. D. is protected by substantial barriers to entry.
Which of the following could explain why the demand for table salt is inelastic?
A) Salt is a luxury good. B) Salt is a rare commodity. C) Households devote a very small portion of their income to salt purchases. D) Salt is a luxury for high-income consumers but a necessity for low-income consumers.