The Phillips Curve Originally Appeared to Demonstrate a Stable Trade-Off

question 75

Multiple Choice

The Phillips curve originally appeared to demonstrate a stable trade-off between inflation and unemployment.This was later thought to be deficient because

• A)it was later recognized that inflation and unemployment were unrelated.
• B)the influence on aggregate demand had not been incorporated.
• C)changes in unemployment had not been incorporated.
• D)the effects of fiscal policy on aggregate demand had not been incorporated.
• E)inflationary expectations had not been incorporated.

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Definitions:

Impact Lag

The delay between the implementation of a policy (such as monetary or fiscal policy) and the observable effects of this policy on the economy.

Fiscal Policy

Government policies regarding taxation and spending that are used to influence economic conditions, including economic growth, inflation, and unemployment.

Budget Deficit

A scenario in which a government spends more than it earns in a particular timeframe, resulting in the need to accumulate debt or borrow money.

Automatic Stabilizers

Economic policies and programs, such as unemployment benefits and progressive taxation, designed to automatically reduce volatility in the economy by offsetting fluctuations in economic activity without direct intervention by policymakers.