Question

1. The Phillips curve shows​ that in the​ short-run:

a. unexpected changes in aggregate demand produce an inverse relationship between inflation and unemployment.
b. unexpected changes in aggregate demand produce a positive relationship between inflation and unemployment.
c. expected changes in aggregate demand produce a positive relationship between inflation and unemployment.
d. expected changes in aggregate demand produce an inverse relationship between inflation and unemployment.

2. Suppose people expect the inflation rate to be 3 percent. The government engages in a​ one-time expansionary monetary policy in order to lower unemployment. Once people realize what has happened:
a. the Phillips curve will shift​ inward, causing unemployment to return to its natural rate.
b. there will be a movement along the Phillips​ curve, causing the inflation rate to return to 3 percent.
c. the Phillips curve will shift​ outward, causing unemployment to return to its natural rate.
d. there will be a movement down along the Phillips​ curve, causing unemployment to return to its original level.

Answer 1

Answer: 1. (D) Expected changes in aggregate demand will produce an inverse relationship between inflation and unemployment

2. (D) there would be a downward movement along the Philips curve causing unemployment to return to its original level

Explanation: 1. The answer follows the definition of the Philips curve

2. Expansionary policy causes unemployment to move to its original level and inflation to increase as explained under the long run Philips curve

Answer 2

(1) d. expected changes in aggregate demand produce an inverse relationship between inflation and unemployment.

(2)

d. there will be a movement down along the Phillips​ curve, causing unemployment to return to its original level.

Step-by-step explanation:

(1) According to Phillip Curve, There's an inverse relationship between inflation and unemployment.

(2)

Suppose people expect the inflation rate to be 3 percent. The government engages in a​ one-time expansionary monetary policy in order to lower unemployment. There will be a movement in the Phillip curve, causing unemployment to move to its original level, because the relationship between unemployment and inflation is inverse.