Use the Following to Answer Questions

question 165

Multiple Choice

Use the following to answer questions :
Figure: Expected Inflation and the Short-Run Phillips Curve
SRPC₀ is the Phillips curve with an expected inflation rate of zero; SRPC₂ is the Phillips curve with an expected inflation rate of 2%.
-(Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. If the central bank increases the money supply such that aggregate demand shifts to the right and unemployment falls to 4%, then inflation will:

• A)fall to -2%.
• B)not change.
• C)rise to 2%.
• D)rise to 4%.

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Definitions:

Financial Statements

Financial statements are written records that convey the business activities and the financial performance of a company, including balance sheet, income statement, and cash flow statement.

Net Income

Net income is the total profit of a company after all expenses and taxes have been subtracted from total revenue.

Hedge Accounting

Accounting techniques that modify the standard rules of accounting to recognize the offsetting effects on the financial statements of both the hedged item and the hedging instrument.

Mandatory

Required or obligatory; something that must be done or adhered to.