The Short-Run Phillips Curve Tells Policy Makers That If Inflation

question 30

Multiple Choice

The short-run Phillips curve tells policy makers that if inflation is currently 6 percent and unemployment is 4 percent, measures to reduce the inflation rate to 4 percent will most likely lead to an unemployment rate of:

• A)0 percent.
• B)2 percent.
• C)4 percent.
• D)6 percent.

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Definitions:

Marginal Returns

The additional output generated by adding one more unit of a specific input, while keeping other inputs constant.

Total Product Curve

A graphical representation showing how the total output of a firm changes as the amount of a single input is increased, holding other inputs constant.

Marginal Product

The additional output generated by increasing one unit of a specific input, keeping other inputs constant.

Labor

The human effort, both physical and mental, used in the production of goods and services.