Higher Than Expected Rates of Inflation Cause the Short-Run Phillips

question 17

Multiple Choice

Higher than expected rates of inflation cause the short-run Phillips curve to

• A) equal the aggregate demand curve.
• B) become horizontal.
• C) remain stable.
• D) shift further upward and out from the origin.
• E) reflect the fact that, in the long run, the actual rate of unemployment remains below the natural rate of unemployment.

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Definitions:

Optimal Level

The best or most efficient point at which a particular action or operation achieves a balance between benefits and costs.

Profit-maximizing Output

The maximum profit attainment point for a company occurs when the marginal cost matches the marginal revenue, indicating the optimum production level.

Purely Competitive Firm

A firm operating in a market where there are many sellers and buyers, the products are homogenous, and there are no barriers to entry or exit, leading to market prices being determined by supply and demand.