If Unemployment Is Above Its Natural Rate, What Happens to Move

question 179

Multiple Choice

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

• A)Inflation expectations rise, which shifts the short-run Phillips curve to the right.
• B)Inflation expectations rise, which shifts the short-run Phillips curve to the left.
• C)Inflation expectations fall, which shifts the short-run Phillips curve to the right.
• D)Inflation expectations fall, which shifts the short-run Phillips curve to the left.

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Definitions:

Consumption

The action of using goods or services for personal use, satisfaction, or to fulfill needs.

Expected Income Stream

The anticipated series of payments received over time, often from investments, employment, or other sources of income.

Permanent Income Hypothesis

A theory suggesting that people's consumption choices are based on their long-term average income rather than their current income.

Tax Cut

A reduction in the amount of taxes imposed by a government, aiming to stimulate economic growth or achieve other policy objectives.