Question 1 of 2

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Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. In a country such as Japan, which has had very little inflation in recent memory, it will take longer for a change in the actual inflation rate to be reflected in a corresponding change in the expected inflation rate. In contrast, in a country such as Zimbabwe, which has recently had very high inflation, a change in the actual inflation rate will immediately be reflected in a corresponding change in the expected inflation rate.

Which of the following statements is true in regards to the short-run and long-run Phillips curves in these two types of countries?

Both countries experience a vertical Phillips curve in both the short and long run.

Japan has a horizontal Phillips curve in the long run.

Both countries experience a vertical Phillips curve in the long run.

Zimbabwe has a horizontal Phillips curve in the short run.

1:24

What does this imply about the effectiveness of monetary and fiscal policy to reduce the unemployment rate?

Monetary and fiscal policy will be effective in the short run for both Japan and Zimbabwe.

Monetary and fiscal policy will be ineffective in the short and long run for both Japan and Zimbabwe.

Monetary and fiscal policy will be effective for Japan and ineffective for Zimbabwe in both the short and long run.

Monetary and fiscal policy will be effective only in the short run for Japan and not Zimbabwe.

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