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Question
Microeconomics
Posted 4 months ago
Which of the following would cause the long-run Phillips curve (LRPC) to shift to the left?
Choose 1 answer:
(A) A decrease in the natural rate of unemployment
(B) An increase in aggregate demand (AD)
(c) An increase in short-run aggregate supply (SRAS)
(D) A decrease in aggregate demand (AD)
(E) An increase in the natural rate of unemployment
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Answer from Sia
Posted 4 months ago
Solution
a
Definition of Long-Run Phillips Curve (LRPC): The LRPC represents the relationship between inflation and unemployment in the long run, where the economy is at its natural rate of unemployment
b
Natural Rate of Unemployment: The natural rate of unemployment is the level of unemployment consistent with a stable rate of inflation. A decrease in the natural rate of unemployment means that the economy can sustain a lower level of unemployment without causing inflation to rise
c
Leftward Shift of LRPC: A decrease in the natural rate of unemployment would shift the LRPC to the left because it indicates that the economy can achieve a lower unemployment rate without increasing inflation
Answer
A. A decrease in the natural rate of unemployment
Key Concept
Natural Rate of Unemployment
Explanation
A decrease in the natural rate of unemployment shifts the LRPC to the left because it implies that the economy can sustain a lower level of unemployment without causing inflation to rise.
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