Question 1

What is the short-run Phillips curve (SRPC)?

Accepted Answer

A downward-sloping curve that illustrates the short-run trade-off between inflation and unemployment

Question 2

What is the long-run Phillips curve (LRPC)?

Accepted Answer

A vertical line illustrating the long-run relationship between inflation and unemployment at the natural rate of unemployment

There is no tradeoff between unemployment and inflation in the long run, so the LRPC is vertical at the natural rate of unemployment

Question 3

What is long-run equilibrium on the Phillips curve graph?

Accepted Answer

Long-run equilibrium is the intersection of the SRPC and the LRPC

(full employment is at the NRU)

Question 4

What do points to the left or right of the LRPC represent on the Phillips curve graph?

Accepted Answer

Left of LRPC: inflationary gaps

Right of LRPC: recessionary gaps

An economy is always operating somewhere along the SRPC

Question 5

How do demand shocks affect the Phillips curve?

Accepted Answer

Positive shock: move the dot left on the curve

Negative shock: move the dot right on the curve

Question 6

How do supply shocks affect the Phillips curve?

Accepted Answer

Positive shock: the SRPC shifts left

Negative shock: the SRPC shifts right

Question 7

What causes shifts in the LRPC?

Accepted Answer

Anything that changes NRU (changes in structural or frictional unemployment)

5.2 The Phillips Curve, AP Macroeconomics Flashcards