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2) "The short-run Phillips curve shows the tradeof between real GDP and inlation." Is the
previous statement correct or incorrect? Briely explain you answer.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
3) "The short-run Phillips curve is vertical at the natural unemployment rate." Is the
previous statement correct or incorrect?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
4) What does the short-run Phillips curve indicate about the tradeof between inlation and
unemployment?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Written and oral communication
5) "The short-run Phillips curve shifts leftward when the inlation rate rises." Is the
previous statement correct or incorrect?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
61
6) If the short-run Phillips curve shifts rightward, what happens to the tradeof between
inlation and unemployment? If the short-run Phillips curve shifts leftward, what happens to
the tradeof between inlation and unemployment?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Written and oral communication
7) "As the economy moves upward along its aggregate supply curve, the economy also
moves upward along its short-run Phillips curve." Is the previous statement correct or
incorrect? Briely explain your answer.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Written and oral communication
8) Discuss the relationship between the aggregate supply curve and the short-run Phillips
curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Written and oral communication
62
9) What is Okun's Law?
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
10) A country reports a potential GDP of $6 trillion, a natural unemployment rate of 4
percent and an expected inlation rate of 2 percent. Using Okun's Law, if the unemployment
rate is 5 percent, what is real GDP?
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
11) If the economy has a natural unemployment rate of 4 percent and potential GDP of $5
trillion, what will be real GDP according to Okun's Law if the unemployment rate rises to 5
percent?
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
12) The natural unemployment rate is 4 percent and the actual unemployment rate is 7
percent. According to Okun's Law, how does of real GDP compare to potential GDP?
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
63
13) Potential GDP is $5,000 billion and the natural unemployment rate is 5 percent. Based
on these data, complete the table below by using Okun's Law to calculate real GDP for the
diferent unemployment rates.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
64
14) A country reports potential GDP of $10.0 trillion and a natural unemployment rate of 5
percent. Based on these data, use Okun's Law to complete the table below.
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
15.7 Essay: Short-Run and Long-Run Phillips Curves
1) "The long-run Phillips curve is downward sloping." Is the previous statement correct or
incorrect?
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
2) "The long-run Phillips curve is vertical at the expected rate of inlation." Is the previous
statement correct or incorrect?
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Relective thinking
3) Distinguish between the short-run and long-run Phillips curves.
equals the expected inlation rate. There is no long-run tradeof between inlation and
unemployment. The short-run Phillips curve, however, shows the relationship between the
inlation rate and the unemployment rate when the natural unemployment rate and the
expected inlation rate do not change. The short-run Phillips curve is downward sloping, so
that it shows a tradeof between inlation and unemployment.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
4) In the long run, what is the tradeof between inlation and unemployment? Explain your
answer using Phillips curve analysis.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
5) Explain how the short-run and long-run Phillips curves are related.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
66
6) When the expected inlation rate changes, what happens to the short-run Phillips curve?
To the long-run Phillips curve?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
7) When the natural unemployment rate changes, what happens to the short-run Phillips
curve? To the long-run Phillips curve?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
8) What is the natural rate hypothesis?
Skill: Level 1: Deinition
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
9) Using the Phillips curves, what are the short-run and long-run efects of a decrease in
the inlation rate?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
67
