The Key Feature That Makes the Short-Run Phillips Curve Have

question 8

Multiple Choice

The key feature that makes the short-run Phillips curve have a negative slope-meaning that unexpected inflation decreases the unemployment rate-is that

• A) expectations are formed irrationally.
• B) reservation wages are fixed.
• C) workers behave irrationally.
• D) firms are greedy.
• E) government policy is time consistent.

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Definitions:

Profit

The financial gain realized when the revenue generated from a business activity exceeds the costs, expenses, and taxes needed to sustain the activity.

Contribution Margin Ratio

A financial metric that shows the percentage of sales revenue that remains after variable costs are subtracted.

Fixed Monthly Expenses

Recurring costs that do not vary in total within a given period, such as rent, salaries, and insurance premiums, irrespective of the level of business activity.

Net Operating Income

The profit a company generates from its regular, core business operations, excluding any income from investments or secondary sources.