The Traditional Phillips Curve Suggests That, If Government Uses an Expansionary

question 114

Multiple Choice

The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment,

• A) unemployment may actually increase because of the crowding-out effect.
• B) tax revenues may increase even though tax rates have been reduced.
• C) the inflation rate will increase.
• D) the natural rate of unemployment may fall.

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Definitions:

Economy's Capacity

The maximum level of output that an economy can sustain over a period of time without increasing inflation.

Bowed Outward

A description of a production possibility frontier that displays increasing opportunity costs as more of one good is produced.

Specialized Resources

Inputs in the production process that have specific uses and are not easily adaptable to other types of production.

Comparative Advantage

The capacity of a person, business, or nation to create a product or offer a service with a smaller opportunity cost compared to its rivals.