10 Questions from Reffonomics: Phililps Curve Interactive

  1. When asked if the Short-Run Phillips Curve ever shifts up or down, President Obama cut right to the chase and pointed that the SRPC was a mirror image of the __SRAS______. So, you see, when the __SRAS______shifts right, the SRPC shifts _____to the left__ and vice versa.

  1. What country’s economy did Phillips study? ____U.K.______

  1. How high did the unemployment rate in the US reach in the 1930’s (approx..)? __25%+____And how low did deflation dip in 1931-33 (approx.)?___-5% to -10% ______
  2. If AD increases, GDP rises, price levels __rise______and unemployment ___falls______. So an increase in AD equates to sliding up the SRPC and a decrease in AD equates to sliding __down_____ the SRPC.
  3. What are the two reasons the SRPC shifts? Positive or negative _supply shocks____ and changes in __expected inflation____.
  4. Last winter’s unusually cold weather was a mild supply shock, shifting the SRAS curve to the __left___. The caused the SRPC to shift to the __right or up______, meaning for every level of unemployment, inflation was ___higher______, or conversely, for every level of inflation, unemployment was ___higher______.

Yes, sometimes the hopey-changey thing is good, sometimes its not.

  1. The Long-Run Phillips Curve (LRPC) is vertical because it is the mirror image of the _LRAS curve_. It represents the economy at the __Natural__ Rate of Employment. This is also shown as Yf in many graphs, meaning Real GDP at _Full Employment______.
  2. In the long run, there is no tradeoff between __Inflation______and __Unemployment______. This is because an adjustment back to the LRPC occurs, similar to the adjustment in the AD/AS model back to _LRAS______. When AD increases, price levels __rise_____. This leads to an increase in one of the factors which shifts the SRPC curve, ___inflation expectations__, causing the SRPC curve to shift to the __right______. The result is unemployment back at the vertical _LRPC____ line, despite a rise in price levels.

  1. Since the SRPC curve implies there is a tradeoff between unemployment and inflation, the President’s goal must be for the Long Run. This means he is looking for policies that will shift the _LRPC_____ to the _left____. An example would be an increase in productivity through new technology. The leftward shift in the __LRPC_____ also means a rightward shift in its mirror image, the __LRAS curve______.
  2. The Short-Run Phillips Curve should be considered a cause-and-effect relationship. T F
  3. Bonus question: Who is this in the below picture?

Two 10th grade students from Mr.Reff’s AP Economics class who created the idea for this lesson.