If unemployment is below the NAIRU, inflation generally:
A. becomes negative.
B. gets caught in a downward spiral.
C. decelerates.
D. accelerates.
Answer: D
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In late 2007, the Fed began a series of cuts in the federal funds rate. Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was
A) to increase the real interest rate. B) to avoid a recession. C) to encourage households to save more money. D) to reduce the natural unemployment rate. E) to raise the price of the dollar in the foreign exchange market.
If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will
A) decrease output. B) increase output. C) shut down. D) operate at a loss.
The short-run relationship between inflation and unemployment is often called as the Phillips curve.
Answer the following statement true (T) or false (F)
Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see
A. Firms enter the industry, driving down the market price. B. Firms exit from the industry, driving up the market price. C. No change in the number of firms in the industry and no change in the market price. D. Firms enter the industry, driving up the market price.