The Idea That, in the Long Run, the Phillips Curve

question 47

Multiple Choice

The idea that, in the long run, the Phillips curve is vertical, implying no trade- off between inflation and unemployment, is based on the premise that

• A)inflationary expectations do not influence inflation.
• B)expectations do not adjust to reflect actual inflation.
• C)changes in unemployment do not influence real GDP.
• D)inflation and unemployment are unrelated.
• E)inflationary expectations fully adjust to actual inflation.

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Definitions:

Diminishing-Balance

A method of calculating depreciation that results in larger depreciation charges in the early years of an asset's life and smaller charges in the later years.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life to account for the reduction in value due to wear and tear, age, or obsolescence.

Straight-Line Method

A method of calculating depreciation by evenly spreading the cost of an asset over its useful life.

Freight Charges

Fees paid for the transportation of goods from one place to another, typically charged by shipping companies.