1. For cost increases to lead to sustained inflation, there must be persistent rises in costs followed by persistent government efforts to return output to its potential level. 2. For cost increases to lead to sustained inflation, there must be persistent rises in costs coupled with wage flexibility that always returns the labour market to equilibrium. 3. For demand increases to lead to sustained inflation, there must be persistent increases in demand followed by persistent government efforts to return output to its potential level. 4. For demand increases to lead to sustained inflation, there must be persistent increases in demand coupled with wage flexibility that always returns the labour market to equilibrium. a) 1 and 3 only b) 1 and 4 only c) 2 and 3 only d) 2 and 4 only Question 2 Which of the following statements about the UK is false? a) Phillips's original curve concerned increases in nominal wages, not increases in the price level. b) Phillips's observations suggested that his curve was generally stable between 1861 and 1957. c) Phillips curves are generally concerned with increases in the price level, not increases in nominal wages. d) Phillips curves have generally been fairly stable since 1957