ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
a shift to the right of the SRPC
|
|
|
a shift to the left of the SRPC
|
|
|
movement down the SRPC
|
|
|
movement up the SRPC
|
Detailed explanation-1: -Key points. A Phillips curve shows the tradeoff between unemployment and inflation in an economy. Keynesian macroeconomics argues that the solution to a recession is expansionary fiscal policy that shifts the aggregate demand curve to the right.
Detailed explanation-2: -Economists have concluded that two factors cause the Phillips curve to shift. The first is supply shocks, like the Oil Crisis of the mid-1970s, which first brought stagflation into our vocabulary. The second is changes in people’s expectations about inflation.
Detailed explanation-3: -Also increased inflation expectations will shift the SRPC up (to the right) and decreased inflation expectations will shift the SRPC down (to the left).
Detailed explanation-4: -The SRPC illustrates the inverse relationship between prices and unemployment in the short run. The curve is downward sloping because workers and firms sometimes expect the inflation rate to be higher or lower than it actually is.