Question 1

Explain the concept of inflation expectations and the ways it affects the rate of inflation.

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Question 2

Do credible expectations of high inflation create a self-fulfilling prophecy? Explain.

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Question 3

Can credible expectations of deflation cause consumers to behave in such a way as to create a self-fulfilling prophecy? Explain.

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Question 4

What are three ways in which inflation expectations can be measured?

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Question 5

How does an inflation swap reflect inflation expectations, and what is the downside of using inflation swap rates as inflation predictors?

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Question 6

What is the difference between adaptive inflation expectations, anchored inflation expectations, and rational inflation expectations?

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Question 7

What is the relationship between the output gap and inflation?

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Question 8

What is the relationship between excess demand, insufficient demand, and inflation?

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Question 9

What does the labor market Phillips curve tell you about the relationship between the output gap and unemployment?

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Question 10

How can the Phillips curve be both upward-sloping and downward-sloping?

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Question 11

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here.
(a) Next year, you expect GDP to be 4% above potential GDP. What is your forecast for unexpected inflation?
(b) Next year, you expect GDP to be 4% below potential GDP. What is your forecast for unexpected inflation?
(c) Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation?

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Question 12

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here.
(a) Next year, you expect GDP to be 4% above potential GDP. Current inflation expectations are at 2%. How much does your salary have to change in nominal terms in order to maintain your purchasing power at the current level?
(b) Next year, you expect GDP to be 4% below potential GDP. Current inflation expectations are at 2%. How much does your salary have to change in nominal terms in order to maintain your purchasing power at the current level?
(c) Next year, you expect GDP to be equal to potential GDP. Current inflation expectations are at 2%. How much does your salary have to change in nominal terms in order to maintain your purchasing power at the current level?

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Question 13

What are three broad factors that shift the Phillips curve?

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Question 14

In 1973, the Organization of the Petroleum Exporting Countries (OPEC) lowered oil production, and this raised oil prices sharply. What impact did this have on the Phillips curve? Use a graph of the Phillips curve in your answer.

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Question 15

In the 1990s, technological advances increased productivity in the United States. What impact did this have on the Phillips curve? Use a graph of the Phillips curve in your answer.

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Question 16

How does U.S. dollar appreciation affect the Phillips curve in the United States? How does U.S. dollar depreciation affect the Phillips curve in the United States? Use a graph of the Phillips curve in your answer.

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Question 17

Suppose the introduction of data analytics in production systems and transportation systems leads to increased productivity of existing resources. What impact does this have on the Phillips curve? Use a graph of the Phillips curve in your answer.

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Question 18

Suppose the Kenyan exchange rate changes from 112 Kenya shillings per euro to 125 Kenya shillings per euro. What impact does this have on the Phillips curve in Kenya? Use a graph of the Phillips curve in your answer.

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Question 19

When commodity prices rise in international markets, what happens to the Phillips curve? Use a graph of the Phillips curve in your answer.

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Question 20

Choose either the word decrease or increase to fill in the blanks.
(a) When input costs _____, production costs _____, and this causes rising prices at each output gap.
(b) A(n) _____ in productivity leads to falling production costs and the _____ in prices at each output gap.
(c) A(n) _____ in productivity leads to rising production costs and the _____ in prices at each output gap.

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Quiz 31: Phillips Curve