AP Macro Phillips Curve 2

Question 1

The long-run Phillips Curve (LRPC) is typically depicted as:

Accepted Answer

A vertical line at the natural rate of unemployment

Answer

The LRPC is vertical at the natural rate of unemployment because in the long run, inflation expectations fully adjust and there is no lasting trade-off between inflation and unemployment.

Question 2

What causes the short-run Phillips Curve to shift to the right (outward)?

Accepted Answer

An increase in expected inflation or a negative supply shock

Answer

Higher inflation expectations or negative supply shocks shift the SRPC rightward, producing higher inflation at every unemployment rate.

Question 3

According to the adaptive expectations hypothesis, workers and firms form inflation expectations based on:

Accepted Answer

Past inflation experience

Answer

Adaptive expectations means economic agents expect future inflation to resemble past inflation, gradually updating their expectations as new data arrives.

Question 4

If the central bank unexpectedly expands the money supply, the short-run effect on the Phillips Curve would be:

Accepted Answer

Movement up and to the left along the SRPC (lower unemployment, higher inflation)

Answer

Unexpected monetary expansion boosts aggregate demand, reducing unemployment and raising inflation — a movement up and to the left along the existing SRPC.

Question 5

In the long run, if a central bank repeatedly tries to hold unemployment below the natural rate, the result will be:

Accepted Answer

Accelerating inflation with unemployment eventually returning to the natural rate

Answer

Sustained attempts to push unemployment below the natural rate cause inflation expectations to ratchet upward, shifting the SRPC up repeatedly and resulting in accelerating inflation.

AP Practice Test

AP Practice Test

AP Macro Phillips Curve 2