4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. INFLATION RATE (Percent) 12 11 10 9 co (050) 3 2 1 0 0 1 2 4 UNEMPLOYMENT (Percent) 3 5 SRPC H 6 SRPC (?)

4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. INFLATION RATE (Percent) 12 11 10 9 co (050) 3 2 1 0 0 1 2 4 UNEMPLOYMENT (Percent) 3 5 SRPC H 6 SRPC (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. A fall in Aggregate Demand will a) lead to a rise in frictional unemployment b) lead to a rise in cyclical unemployment c) lead to a rise in structural unemployment 5. The Phillips curve links a) Inflation and unemployment b) inflation and output c) inflation and imports
2. The Phillips curve in the short run and long run The following graph plots aggregate demand (AD) and aggregate supply (AS) for the imaginary country of Iguazu in the year 2027. Suppose the natural level of output in this economy is $7 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. PRICE LEVEL 108 107 LRAS AS 108 105 104 103 102 101 A AD AD 100 2 4 10 12 14 16 OUTPUT (Trillions of dollars) Outcome C Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B.…
15 Suppose that an economy has the Phillips curve: n = n(-1)-0.5 (u - 0.05) a. What is the natural rate of unemployment? How much cyclical unemployment is necessary to reduce inflation by 3 percentage points? Using Okun's law, compute the sacrifice ratio. b. Inflation is running at 6 percent. The central bank wants to reduce it to 2 percent. Give two scenarios that will achieve that goal.
5. Inflation and the quantity theory: Suppose velocity is constant, the growth rate of real GDP is 3% per year, and the growth rate of money is 5% per year. Calculate the long-run rate of inflation according to the quantity theory in each of the following cases: 1. What is the rate of inflation in this baseline case? 2. Suppose the growth rate of money rises to 10% per year. 3. Suppose the growth rate of money rises to 100% per year. 4. Back to the baseline case, suppose real GDP growth rises to 5% per year. 5. What if real GDP growth falls to 2% per year? 6. Return to the baseline case and suppose the velocity of money rises at 1% per year. What happens to inflation in this case? Why might velocity change in this fashion?
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5. The stock market crash has caused a great number of asset prices to drop sharply.If people’s expectation on current inflation level remain unchanged, what wouldbe the effects of this crisis to inflation and unemployment? Explain and useappropriate diagrams to support your answer.
D Question 1 The short-run Phillips curve is a curve that shows the relationship, other things being constant, between and O the inflation rate; the unemployment rate O the inflation rate; the nominal interest rate O the unemployment rate; real GDP 0.1 pts O potential GDP; the natural unemployment rate O the inflation rate; the expected inflation rate .
13 Use the table below to calculate core and headline inflation in each time frame relative to the base year, assuming that each category is weighted equally in the calculation of headline inflation. Instructions: Round your answers to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Headline Core inflation inflation Other goods (relative to the base year (relative to the base) Food and Year energy and services 2014 116 102 2018 105 107 2014-2018
Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. (? 12 11 10 SRPC 4 SRPC 2 1 1 2 3 4 5 6 UNEMPLOYMENT (Percent) INFLATION RATE (Percent) 3.