Chapter 3

Inflation, Unemployment and Expectations

Multiple Choice Questions

1. Phillips curve explains that relation between inflation and unemployment is
 
(a) Inverse 

(b) direct 

(c) Neither of the two 

Answer: (a) Inverse 

2. Phillips curves describes the inflation-unemployment trade -off in the 

(a) Long period 

(b) Short period 

(c) Both of them

Answer: (b) Short period.

3. The long run phillips curve in a 

(a) Vertical line

(b) Horizontal line

(c) Negatively sloping curves

Answer: (a) Vertical line  

4. The natural rate of hypothesis involves

(a) Adaptive expectations

(b) Rational expectations

(c) Both of them

Answer: (c) Both of them

5. Given rational expectational and anticipated policy change of monetary expansions, the level of employment 

(a) Increase 

(b) Remains unchanged 

(c) Neither of them

Answer: (b) Remains unchanged.

Very Short Answer type Questions

1. What is Phillips curves ?

Answer:

2. Define inflation-umemployment trade-off.

Answer:

3. What is natural rate ?

Answer:

4. What is meant by adaptive expectations ?

Answer:

5. What is meant by rational expectations ?

Answer: 

Short Answer Type Questions

1. Explain the reasons for inverse relation between inflation and unemployment.

Answer:

2. How dose phillips curve explain unemployment-inflation trade -off ?

Answer:

3. Explain Friedman's natural rate hypothesis.

Answer: 

4. Explain briefly rational expectations hypothesis.

Answer:

Long Answer Type Questions 

1. Explain clearly the trade-off between inflation and unemployment through Phillips curve.

Answer:

2. How does natural rate hypothesis explain the unemployment-inflation relationship ?

Answer:

3. Given rational expectations, analyse the effect of monetary expansion on wages and employment.

Answer:

Very Long Answer Type Questions

1. Explain the concept of philips curve. Discuss its empirical validity.

Answer: 

2.Explain clearly friedman's natural rate hypothesis.

Answer:

3. What is the nature of expectations involved in the natural rate hypothesis ?

Answer:

4. Explain the effect of rational expectations on aggregate demand when policy change is anticipated or unanticipated.

Answer:

Question Type- Bhabesh Bora








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