15 Question The graph below illustrates the short-run and long-run Phillips curve for a hypothetical economy. Initially, the actual and expected inflation rate is 10%, and the unemployment rate is 8% (the natural rate of unemployment). Phillips Curve Inflation 15 LRPC 15 14 13 12 11 10 SRPCI SRPC2
15 Question The graph below illustrates the short-run and long-run Phillips curve for a hypothetical economy. Initially, the actual and expected inflation rate is 10%, and the unemployment rate is 8% (the natural rate of unemployment). Phillips Curve Inflation 15 LRPC 15 14 13 12 11 10 SRPCI SRPC2
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Transcribed Image Text:15 Question 3
The graph belowillustrates the short-run and long-run Phillips curve for a hypothetical economy. Initially, the actual and expected inflation rate is
10%, and the unemployment rate is 8% (the natural rate of unemployment).
Phillips Curve
Inflation
15
LRPC
15
14
13
12
11
10
SRPC1 SRPC2
Unemployment
Part 1.
Suppose the central bank announces it will pursue expansionary policy to change the inflation rate to 14%. If the central bank pushes
the inflation rate to 14%, but the public still expects 10% inflation, the unemployment rate will be
% in the short run.
Part 2
Now, suppose that the central bank still pushes the inflation rate to 14%, but the public expects 12% inflation. In this case, the
unemployment rate will be
% in the short run.
Part 3
Finally, suppose that under the same circumstances, the central bank pushes the inflation rate to 14%, and the public expects 14%
inflation. In that case, the unemployment rate will be
% in the short run.
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