A decrease in expected inflation shifts which of the following curves, and in what direction?

a. It shifts the short-run Phillips curve left.

b. It shifts the long-run Phillips curve right.

c. It shifts the long-run Phillips curve left.

d. It shifts the short-run Phillips curve right.

Compared to the 1970s, how did the Canadian short-run Phillips curve move in recent years and why?

a. It has moved further right as inflation expectations have fallen.

b. It has moved further left as inflation expectations have risen.

c. It has moved further left as inflation expectations have fallen.

d. It has moved further right as inflation expectations have risen.

Which statement best characterizes the theory of rational expectations?

a. It concerns how people use information to predict the future.

b. It explains why the long-run Phillips curve is vertical.

c. It explains how people act when there is unemployment and workers must be rationed.

d. It suggests that estimates of the sacrifice ratio should be used to guide policy.

In the late 1960s and early 1970s, how did the short-run Phillips curve shift?

a. It shifted right as inflation expectations rose.

b. It shifted left as inflation expectations rose.

c. It shifted right as inflation expectations fell.

d. It shifted left as inflation expectations fell.

Suppose the federal government cuts spending to balance the next federal budget. What can the Bank of Canada do to prevent a recession and unemployment while maintaining the balanced budget?

a. by cutting expenditures

b. by increasing the money supply

c. by raising taxes

d. by decreasing the money supply