Referring to Exhibit 6, assuming the economy operates at point (D), as agents adjust their price expectations ?
Show answer Hide answer
Answer: D. The long-run Phillips curve will shift to the left
Explanation
In standard macroeconomic models, expectations adjustments shift the short-run Phillips curve rather than permanently altering long-run relationships.
Related questions
Q1. Referring to Exhibit 4, in the absence of a market tax, consumer surplus corresponds to the area ?
Show answer Hide answer
Answer: C. A + B + E
Consumer surplus is the total benefit consumers receive above what they actually pay. Graphically, it spans the area below the demand curve and above the market price. Option C is correct because areas A, B, and E consti...
Q2. Referring to Exhibit 4, in the absence of a market tax, producer surplus corresponds to the area ?
Show answer Hide answer
Answer: D. C + D + F
Producer surplus in the absence of a tax is the area below market price. This geometric area lies above the market supply curve up to the equilibrium price. It measures the total economic benefit producers gain from part...
Q3. Referring to Exhibit 6, if economic agents anticipate 6 percent inflation but actual inflation registers at 3 percent, the economy operates at point ?
Show answer Hide answer
Answer: D. F
When expected inflation exceeds actual inflation, unemployment drops below the natural rate. The economy moves to a point on the short-run Phillips curve reflecting surprise inflation. Option D is correct because point F...
Q4. Referring to Exhibit 4, when a market product is taxed, consumer surplus is represented by the area ?
Show answer Hide answer
Answer: B. A
Consumer surplus after a tax is imposed is represented by a smaller triangle. This area lies beneath the demand curve and above the new higher buyer price. Imposing a market tax reduces consumer surplus by raising the pr...
Q5. Based on Exhibit 6, assume the economy currently rests in long-run equilibrium at point E. What direction will the economy move following an unexpected monetary contraction?
Show answer Hide answer
Answer: B. F
An unexpected monetary contraction shifts aggregate demand to the left, reducing output. This contractionary shock pushes the economy away from long-run equilibrium into recession. Option B is correct because the economy...
Q6. With reference to Exhibit 4, assume a consumer decides between socks and belts with an available income of €100. If the price of a pair of socks drops from €5 to €2, which point movement depicts the income effect?
Show answer Hide answer
Answer: A. X to point Y
The income effect reflects consumption changes resulting from increased real purchasing power. When a product price drops, consumers feel richer and adjust their purchasing choices. Movement from point X to point Y illus...