Consider an Economy That Is Operating at the Intersection of the Short-Run

question 12

Multiple Choice

Consider an economy that is operating at the intersection of the short-run and long run Phillips curves. The level of unemployment is 2.5 per cent while the level of inflation is 4 per cent. At this point, if speculation about oil price hikes increase inflationary expectations in this economy, which of the following must happen?

• A) The level of unemployment will be higher than 2.5 per cent at the new equilibrium.
• B) The short-run Phillips curve will move up and the new level of inflation will be higher than 4
• C) The economy will move up along the short-run Phillips curve, increasing the level of inflation above 4 per cent.
• D) The short-run Phillips curve will move down from its original position.

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Definitions:

Standard Deviation

A statistic that measures the dispersion or variability of a dataset relative to its mean, indicating how spread out the data points are.

Lead Time

The total amount of time it takes from the initiation of a process or order until it's completed, influencing inventory levels and customer satisfaction.

Variable Demand

A situation where the demand for products or services fluctuates over time, affected by various factors such as seasonality, market trends, or economic conditions.