If the Short-Run Phillips Curve Were Stable, What Would Be

question 182

Multiple Choice

If the short-run Phillips curve were stable, what would be unusual?

• A) an increase in inflation and an increase in output
• B) a decrease in inflation and an increase in unemployment
• C) an increase in both inflation and unemployment
• D) an increase in output and a decrease in unemployment

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Definitions:

Laffer Curve

A theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation, suggesting an optimal tax rate for maximizing revenue.

Tax Revenue

The income that is collected by the government through the imposition of taxes on goods, services, and income.

Marginal Tax Rates

The rate at which the last dollar of income is taxed, indicating how much tax will be paid on an additional dollar of income.

Laffer Curve

A theoretical representation of the relationship between tax rates and the amount of tax revenue collected by governments, suggesting that increasing tax rates beyond a certain point is counter-productive for raising tax revenue.