Aggregate Supply
Problem Set #5
Economics 100b; Spring 1996; Brad DeLong
1. Briefly summarize (one sentence on each) three reasons why
businesses in the aggregate react to increases in total demand by
increasing their prices and increasing the quantities they
produce and sell (as opposed to increasing prices alone).
2. What is the Phillips curve? What is the difference between the
original Phillips curve and the accelerationist
Phillips curve?
3. What is the difference between the short run and the long run
Phillips curve?
4. When the economy experiences a positive "supply shock", does:
- inflation accelerate and unemployment rise
- inflation decelerate and unemployment rise
- inflation accelerate and unemployment fall
- inflation decelerate and unemployment fall?
5. When the economy experiences a positive "demand shock", does:
- inflation accelerate and unemployment rise
- inflation decelerate and unemployment rise
- inflation accelerate and unemployment fall
- inflation decelerate and unemployment fall?
6. Does the short-run inflation-unemployment Phillips curve for
the U.S. today lie:
- above and to the right of the curve for the 1970s
- below and to the right of the curve for the 1970s
- above and to the left of the curve for the 1970s
- below and to the left of the curve for the 1970s?
7. What is the principal determinant of the location of the
short run Phillips curve?
8. What is the principal determinant of the slope of the short
run Phillips curve?
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