What are price shocks? Why were they not included in the original formulation of the Phillips curve? Why were they added to the modern Phillips curve?
What will be an ideal response?
In the Phillips curve, inflation is determined by expected inflation and the unemployment gap. A price shock is anything other than those two factors that has an impact on inflation, such as a change in import prices. At first, Phillips and other economists were interested in the relationship between unemployment and inflation, rather than in devising a comprehensive explanation addressing all causes of inflation. Once it became clear that a persistent unemployment gap will cause inflation to change repeatedly (shifts of the short-run Phillips curve), it was possible to ask how much of inflation is attributable to labor market conditions, which requires recognition of all other factors that influence inflation.
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When dealing with negative externalities, government action is required
A) only if transactions cost are low. B) for any bargain to be successful. C) only in environmental disputes. D) only if transactions costs preclude bargaining between polluter and victim.
If Mario's pizza states that it will meet any competitor's price on a 12 inch, one topping pizza, this is an example of ________.
A) a high barrier to entry B) a preannouncement C) price leadership D) a meet-the-competition clause
To correct for the underproduction of products with positive externalities, the government must
A) provide the incentives for the private sector to produce and consume the good. B) provide tougher regulations on the industry. C) increase taxes on the industry. D) fine the industry.
Human capital is:
A. the talents, training, and education of workers. B. the financial resources available to humans for investment. C. the factories and machinery used by humans in the production process. D. the factories and machinery made by workers.