In the short-run Phillips curve framework, if actual output is below potential output, the price level tends to:

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Prepare for the Rutgers Macroeconomics Test with multiple choice questions, hints, and explanations. Master key concepts and excel in your exam!

Multiple Choice

In the short-run Phillips curve framework, if actual output is below potential output, the price level tends to:

Explanation:
In the short-run Phillips curve framework, inflation and unemployment move oppositely: when unemployment is high, inflation tends to slow. If actual output is below potential, the economy has a negative output gap, meaning resources are underused and unemployment is above its natural rate. With weaker demand and more slack in the economy, upward price pressures ease, and prices can even fall. So the price level tends to decrease (the inflation rate falls) in the short run when output is below potential.

In the short-run Phillips curve framework, inflation and unemployment move oppositely: when unemployment is high, inflation tends to slow. If actual output is below potential, the economy has a negative output gap, meaning resources are underused and unemployment is above its natural rate. With weaker demand and more slack in the economy, upward price pressures ease, and prices can even fall. So the price level tends to decrease (the inflation rate falls) in the short run when output is below potential.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy