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Differentiate between movements *along* the SRPC and shifts *of* the SRPC.
Movements *along* are caused by changes in AD; shifts *of* are caused by changes in SRAS.
Compare the short-run and long-run effects of an increase in the money supply on unemployment.
Short-run: unemployment falls. Long-run: unemployment returns to the natural rate.
Compare the short-run and long-run effects of an increase in the money supply on inflation.
Short-run: inflation increases. Long-run: inflation increases further.
What is the difference between the SRPC and LRPC in terms of policy implications?
SRPC suggests a trade-off policymakers can exploit in the short run. LRPC shows no such trade-off exists in the long run.
Compare the causes of inflation when moving along the SRPC versus shifting the SRPC.
Moving along: caused by increased AD. Shifting: caused by decreased SRAS or increased expected inflation.
Compare the effects of AD and SRAS shifts on inflation and unemployment.
AD increase: inflation up, unemployment down. SRAS decrease: inflation up, unemployment up (stagflation).
Compare the shape and implications of SRAS and LRAS with SRPC and LRPC.
SRAS is upward sloping, SRPC downward sloping, both represent short-run trade-offs. LRAS and LRPC are vertical, showing long-run equilibrium and no trade-offs.
Compare the impact of demand-side vs supply-side policies on the SRPC.
Demand-side: cause movements along the SRPC. Supply-side: cause shifts of the SRPC.
Compare the effect of expansionary monetary policy in the short-run and long-run.
Short-run: decrease unemployment and increase inflation. Long-run: no change in unemployment and increase inflation.
Compare the effect of expansionary fiscal policy in the short-run and long-run.
Short-run: decrease unemployment and increase inflation. Long-run: no change in unemployment and increase inflation.
What is the long-run effect of expansionary monetary policy on unemployment?
No effect; unemployment returns to the natural rate.
What is the long-run effect of expansionary monetary policy on inflation?
Inflation increases.
How might government policies aimed at retraining workers affect the LRPC?
If successful, it could lower the natural rate of unemployment and shift the LRPC to the left.
How do policies that increase labor market flexibility affect the LRPC?
They may decrease the natural rate of unemployment, shifting the LRPC to the left.
What is the short-run effect of increased government spending on unemployment and inflation?
Unemployment decreases and inflation increases, moving along the SRPC.
What is the impact of wage and price controls on the Phillips curve?
They can temporarily suppress inflation but may lead to shortages and distortions, ultimately not affecting the LRPC.
How can supply-side policies affect the SRPC?
They can shift the SRPC to the left by increasing SRAS.
What is the effect of fiscal policy on LRPC?
Fiscal policy will not affect LRPC.
How does monetary policy affect SRPC?
Monetary policy affects SRPC by shifting AD.
How does supply-side policy affect LRPC?
Supply-side policy can shift the LRPC by changing the natural rate of unemployment.
Describe the shape of the SRPC.
Downward sloping, indicating an inverse relationship between inflation and unemployment.
Describe the shape of the LRPC.
Vertical line at the natural rate of unemployment.
On a Phillips Curve graph, what causes a movement along the SRPC?
Changes in Aggregate Demand (AD).
On a Phillips Curve graph, what causes a shift of the SRPC?
Changes in Short-Run Aggregate Supply (SRAS).
What does a point to the right of the LRPC indicate?
Unemployment is above the natural rate.
What does a point to the left of the LRPC indicate?
Unemployment is below the natural rate.
How is the natural rate of unemployment represented on the LRPC?
It's the x-intercept of the LRPC.
How does an increase in expected inflation affect the SRPC?
It shifts the SRPC to the right.
On an AD/AS graph, show a decrease in AD. How does this relate to the SRPC?
AD shifts left, decreasing price level and real GDP. This corresponds to a movement along the SRPC towards lower inflation and higher unemployment.
On an AD/AS graph, show a decrease in SRAS. How does this relate to the SRPC?
SRAS shifts left, increasing price level and decreasing real GDP. This corresponds to a shift of the SRPC to the right, indicating higher inflation and higher unemployment.