AP Macro Phillips Curve

Question 1

The Phillips Curve illustrates the short-run relationship between which two macroeconomic variables?

Accepted Answer

Inflation and unemployment

Answer

The Phillips Curve shows the inverse relationship between the inflation rate and the unemployment rate in the short run.

Question 2

Along the short-run Phillips Curve (SRPC), when unemployment decreases, inflation tends to:

Accepted Answer

Increase

Answer

The SRPC shows an inverse relationship — lower unemployment corresponds to higher inflation as demand for labor drives up wages and prices.

Question 3

What does the Non-Accelerating Inflation Rate of Unemployment (NAIRU) represent on a Phillips Curve diagram?

Accepted Answer

The unemployment rate consistent with stable inflation

Answer

NAIRU is the unemployment rate at which inflation neither accelerates nor decelerates, representing the long-run equilibrium unemployment rate.

Question 4

If the economy is operating below the NAIRU, which of the following is most likely to occur over time?

Accepted Answer

Accelerating inflation

Answer

Below the NAIRU, the labor market is overly tight, creating sustained upward wage pressure that causes inflation to accelerate over time.

Question 5

The concept of 'stagflation' in the 1970s challenged the simple Phillips Curve because it demonstrated that:

Accepted Answer

High inflation and high unemployment can occur simultaneously

Answer

Stagflation — simultaneous high inflation and high unemployment — contradicted the original Phillips Curve's inverse relationship between the two variables.

AP Practice Test

AP Practice Test

AP Macro Phillips Curve