 If output is above potential, then inflation will fall over time. See page 224+ Phillips curve. The basic Phillips curve (from Jones Macro Econ textbook – note that most other textbook display the Phillips curve differently).  We can see that our True/False statement is contradicted by the intuition of the Phillips curve. With Short-run Output above zero (that is, realized short-run output above the potential) inflation would be expected to be increase – not fall. |
Teaching - Curtis Kephart > Econ 100B Intermediate MacroEconomics (Homework and exam examples) > Econ100b Macroeconomics Mid-Term-2 Review >