Exhibit 17-5 Short-Run and Long-Run Phillips Curve Suppose the Government

question 85

Multiple Choice

Exhibit 17-5 Short-run and long-run Phillips curve Suppose the government shown in Exhibit 17-5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, then:

• A)the economy will remain stuck at point E₁.
• B)the natural rate will permanently increase to 8 percent.
• C)unemployment will rise to 8 percent in the short run.
• D)unemployment will remain at 6 percent as the inflation rate falls.

---

Definitions:

Rental Expense

Rental Expense refers to the cost incurred for renting a property or equipment, categorized as an operating expense in financial accounting.

Square Feet

A measure of area used primarily in the United States, equivalent to the area of a square with sides one foot in length.

Advertising Cost

The expense incurred by a business to promote its products, services, or brand through various media channels.

Allocation Bases

Criteria or methods used for allocating costs in budgeting or accounting, often based on time, output, sales, or square footage.