A Common Explanation for the Behavior of the Short-Run U

question 126

Multiple Choice

A common explanation for the behavior of the short-run U.S. Phillips curve in 2009 and 2010 is that, over the previous 20 or so years, the Federal Reserve had

• A)established a lot of credibility in its commitment to keep inflation at about 2 percent.
• B)established a lot of credibility in its commitment to keep inflation at about 5 percent.
• C)failed to establish significant credibility in its announced intent to keep inflation at about 2 percent.
• D)failed to establish significant credibility in its announced intent to keep inflation at about 5 percent.

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Definitions:

Equilibrium

A condition or state in which economic forces are balanced, such as the point where supply equals demand.

Market Clear

A situation in which the market reaches a state where quantity supplied equals quantity demanded, leaving no surplus or shortage.

Surplus

An excess of income or assets over expenditure or liabilities in a given period, typically a fiscal year, leading to available resources beyond what is required.

Supply Schedule

A table that shows the quantity of a good or service that producers are willing to supply at various prices.