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AP Macroeconomics Practice Quiz: The Phillips Curve

Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026

Test your understanding with short quizzes. This quiz has 7 questions to check your progress.

Question 1 of 7

The short-run Phillips curve illustrates which of the following relationships?

All Questions (7)

The short-run Phillips curve illustrates which of the following relationships?

A) A direct relationship between the price level and real output.

B) An inverse relationship between the inflation rate and the unemployment rate.

C) An inverse relationship between the nominal interest rate and investment.

D) A direct relationship between the inflation rate and the unemployment rate.

Correct Answer: B

The short-run Phillips curve (SRPC) shows a trade-off between inflation and unemployment. Specifically, it demonstrates that as the unemployment rate falls, the inflation rate tends to rise, and vice versa. This creates an inverse relationship.

A rightward shift in the aggregate demand curve is most likely to cause which of the following changes in the Phillips curve model?

A) A rightward shift of the short-run Phillips curve.

B) A leftward shift of the long-run Phillips curve.

C) A movement up and to the left along the short-run Phillips curve.

D) A movement down and to the right along the short-run Phillips curve.

Correct Answer: C

A rightward shift in aggregate demand leads to a higher price level (higher inflation) and a lower unemployment rate as real GDP increases. On the Phillips curve graph, this is represented as a movement up (higher inflation) and to the left (lower unemployment) along the existing short-run Phillips curve.

Which of the following would cause the short-run Phillips curve to shift to the right, indicating a less favorable trade-off between inflation and unemployment?

A) A decrease in government spending.

B) An increase in inflationary expectations.

C) A technological advance that increases productivity.

D) A decrease in the price of imported natural resources.

Correct Answer: B

A rightward shift of the SRPC means that for any given level of unemployment, the inflation rate is higher. This is caused by factors that shift the short-run aggregate supply curve to the left, such as a negative supply shock or an increase in inflationary expectations. When workers and firms expect higher inflation, they negotiate higher nominal wages, which increases production costs and leads to higher inflation at every unemployment level.

The long-run Phillips curve is a vertical line at the natural rate of unemployment primarily because...

A) monetary policy is always effective at reducing unemployment in the long run.

B) the natural rate of unemployment is fixed and can never change.

C) in the long run, expected inflation adjusts to actual inflation, eliminating any trade-off with unemployment.

D) the aggregate demand curve is vertical in the long run.

Correct Answer: C

The long-run Phillips curve (LRPC) is vertical because, in the long run, the unemployment rate returns to its natural rate regardless of the inflation rate. Any attempt to hold unemployment below the natural rate through demand-side policies will eventually be offset by rising inflationary expectations, which shifts the SRPC to the right. In the long run, there is no trade-off between inflation and unemployment.

Assume an economy is in long-run equilibrium. A sudden, sharp increase in oil prices causes a negative supply shock. In the short run, this will lead to...

A) lower inflation and lower unemployment.

B) higher inflation and lower unemployment.

C) a rightward shift of the short-run Phillips curve.

D) a leftward shift of the long-run Phillips curve.

Correct Answer: C

A negative supply shock, like a sharp increase in oil prices, leads to stagflation—a simultaneous increase in both inflation and unemployment. This is represented on the Phillips curve model as a rightward (or upward) shift of the short-run Phillips curve, showing a worse trade-off where both inflation and unemployment are higher.

If a government enacts new laws that significantly reduce the power of labor unions and decrease the minimum wage, which of the following is the most likely long-run outcome?

A) The short-run Phillips curve will shift to the right.

B) The long-run Phillips curve will shift to the right.

C) The long-run Phillips curve will shift to the left.

D) There will be a movement down along the short-run Phillips curve.

Correct Answer: C

Policies that reduce the power of labor unions and lower the minimum wage are likely to decrease structural unemployment. A decrease in structural unemployment lowers the natural rate of unemployment (NRU). Since the long-run Phillips curve is a vertical line at the NRU, a decrease in the NRU will cause the LRPC to shift to the left.

Suppose the natural rate of unemployment is 5% and the current inflation rate is 2%. If the central bank pursues an expansionary policy that reduces the unemployment rate to 3%, what will happen in the long run according to the Phillips curve model?

A) The economy will remain at 3% unemployment with a higher, stable inflation rate.

B) The long-run Phillips curve will shift to the left to intersect the new unemployment rate of 3%.

C) Inflationary expectations will rise, shifting the short-run Phillips curve to the right, and unemployment will return to 5%.

D) Both inflation and unemployment will return to their original levels of 2% and 5%, respectively.

Correct Answer: C

In the short run, the expansionary policy causes a movement along the SRPC to a point with 3% unemployment and higher inflation. However, this situation is not sustainable. In the long run, people will adjust their inflationary expectations upward to match the new, higher actual inflation rate. This increase in expectations shifts the SRPC to the right. The process continues until the economy returns to the natural rate of unemployment (5%) but at a permanently higher rate of inflation.