If Actual Inflation Differs from Expected Inflation, What Is the Slope

question 147

Multiple Choice

If actual inflation differs from expected inflation, what is the slope of the Phillips curve?

• A)The slope is horizontal in the short and long run.
• B)The slope is upward sloping in the short run and vertical in the long run.
• C)The slope is vertical in the short run and upward sloping in the long run.
• D)The slope is downward sloping in the short run and vertical in the long run.

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Definitions:

Velocity of Money

The rate at which money circulates or is exchanged in an economy, used to indicate the economic activity level.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, serving as an indicator of inflation.

Equation of Exchange

An economic formula representing the relationship between the money supply, the velocity of money, the price level, and the number of transactions in an economy.

Money Supply

The entire stock of money assets in an economy at a specified period.