Phillips Curve Flashcards
7 cards from real AP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Phillips Curve flashcards as text
The 'sacrifice ratio' in macroeconomics refers to:
Answer: The percentage points of GDP lost per percentage point reduction in inflation
The sacrifice ratio measures how many percentage points of GDP (or the increase in unemployment) are required to reduce the inflation rate by one percentage point.
A central bank with high credibility affects the Phillips Curve primarily by:
Answer: Lowering inflation expectations, shifting the SRPC leftward
A credible central bank can lower inflation expectations directly, shifting the SRPC leftward and making disinflation less costly in terms of higher unemployment.
Under rational expectations theory, a fully anticipated and credible contractionary monetary policy would:
Answer: Reduce inflation with only a minimal increase in unemployment
Under rational expectations, if agents believe a credible disinflation policy, they immediately lower inflation expectations, allowing inflation to fall without large output losses.
The 'flattening' of the Phillips Curve observed in many advanced economies since the 1990s suggests that:
Answer: Changes in unemployment now have less impact on inflation than they did previously
A flatter SRPC means large changes in unemployment produce only small changes in inflation, often attributed to better-anchored inflation expectations from credible central banks.
Well-anchored inflation expectations affect the short-run Phillips Curve by:
Answer: Keeping the SRPC relatively stable even during temporary economic shocks
When inflation expectations are well-anchored, temporary shocks do not shift the SRPC significantly because agents do not revise their long-run inflation expectations.
During the Volcker disinflation of the early 1980s, the Federal Reserve's contractionary policy primarily resulted in:
Answer: A severe recession and sharply higher unemployment before inflation finally fell
The Volcker disinflation caused a deep recession in 1981–82 with unemployment exceeding 10%, demonstrating that disinflation involves significant real short-run costs.
On an AP Macro exam, if the economy has an inflationary gap, this corresponds to which location on a Phillips Curve diagram?
Answer: A point on the SRPC to the left of the LRPC, with unemployment below the natural rate and above-target inflation
An inflationary gap means actual unemployment is below the natural rate, placing the economy to the left of the LRPC on the SRPC with above-target inflation.