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:

Duress

Force or pressure to enter into a contract.

Lack Of Intention

The absence of a deliberate plan or purpose in performing an action, which can affect the legal interpretation of events or documents.

Unconscionability

A situation where a contract or transaction is so unfair or one-sided that it is deemed oppressive and unenforceable under the law.

Undue Influence

Improper or unfair persuasion that leads an individual to act against their free will or to make decisions that benefit another, particularly in contracts or wills.