4. The long-run Phillips curve This graph shows the long-run Phillips curve (LRPC) and several of the short-run Phillips curves (PC) for an economy. INFLATION RATE (Percent) 12 15 PC, PC, PC, LRPC 2 3 4 B E + + H 5 UNEMPLOYMENT RATE (Percent) ? Assume that the economy is initially at point E, with an expected and actual rate of inflation of 6% and an unemployment rate of 5%. Which of the following events could lead the economy to move to point H in the short run? O The government increases spending. O Consumption spending rises. ONet exports increase. O The Fed raises interest rates. Which of the following statements would best explain a move from point H to point G? Nominal wages are renegotiated at the lower inflation rate of 3%, leading to an increase in employment. The government pursues a contractionary monetary policy.

4. The long-run Phillips curve This graph shows the long-run Phillips curve (LRPC) and several of the short-run Phillips curves (PC) for an economy. INFLATION RATE (Percent) 12 15 PC, PC, PC, LRPC 2 3 4 B E + + H 5 UNEMPLOYMENT RATE (Percent) ? Assume that the economy is initially at point E, with an expected and actual rate of inflation of 6% and an unemployment rate of 5%. Which of the following events could lead the economy to move to point H in the short run? O The government increases spending. O Consumption spending rises. ONet exports increase. O The Fed raises interest rates. Which of the following statements would best explain a move from point H to point G? Nominal wages are renegotiated at the lower inflation rate of 3%, leading to an increase in employment. The government pursues a contractionary monetary policy.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Do the expected inflation rate and natural unemployment rate remain constant along the short-run Phillips curve? Along the short-run Phillips curve, _______. A. the expected inflation rate rises as the natural unemployment rate rises B. the expected inflation rate is constant and the natural unemployment rate varies C. the expected inflation rate and the natural unemployment rate are constant D. the expected inflation rate rises as the natural unemployment rate falls thank ss
If the government uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have adaptive expectations, than Inflation rate (%) 12 10 9 8 6 4 0 4 Long run Phillips curve Natural rate 5 E Short run Phillips curve 9 Unemployment rate (%) Unemployment will rise to 8 percent in the short run. The natural rate will permanently increase to 8 percent The economy will remain stuck at point E1. Unemployment will remain at 6 percent as the inflation rate falls.
Question 43 The idea behind the Phillips curve is that when the unemployment rate is low, wages will decrease to attract now works WHICH MINs Taist wage ill also increes tightness in the labor market raises wages but has little impact on prices all of the above none of the above
3. A nation consists of 2 political parties, Democrats and Republicans. The Democrats care more about unemployment than Republicans, and Repuhlicans care more about inflation than Democrats. When Democrats hold power, they choose an inflation rate, tp and when the Republicans hold power, they choose an inflation rate, TR. Phillips's curve is: T; = n - 1.5 (u - Un). We assume that: Tp > TR.Natural unemployment rate: Un = 5%. An election is about to be held. Assume that expectations about inflation for the coming year are formed before the election. (Essentially, this assumption means that wages for the coming year are set before the election.) Moreover, it is assumed that the Democrats and Republicans have equal chance of winning the election. 1) Solve for expected inflation, in terms of tpand TR. 2) Suppose the Democrats win the election and implement their target inflation rate, Tp. If T, = 3.2% and TR = 1.5%. Solve for the unemployment rate ult. 3) Suppose the Republicans win the…
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9. Study Questions and Problems #9 Initially, the economy is operating at the natural unemployment rate of 5%, and the inflation rate is also 5%. People correctly anticipate that a tax cut will cause the inflation rate to rise to 7%. According to rational expectations, inflation and the unemployment rate 5% in the short run. In the long run, the unemployment rate will be 5%.
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Question 3 Explain why the Phillips Curve is drawn to show a positive relationship between aggregate output and inflation, and why a move up the curve to an above- equilibrium output level may be followed by an upward shift of the whole curve. I
Figure 35-6 Use the graph below to answer the following questions. Inflation Rate D A Curve 1 F U/ B Curve 2 Unemployment Rate Refer to Figure 35-6. Curve 2 is the a. long-run Phillips curve. b. short-run aggregate demand curve. c. short-run Phillips curve. d. long-run aggregate demand curve.
5. Consider the standard Phillips curve. Select all the correct statements: (a) A positive aggregate demand shock will lead to an upward shift in the Phillips curve. (b) Changes in short-run output will lead to movements along the Phillips curve. (c) A negative inflation shock will lead to movements along the Phillips curve. (d) A shock to the price of oil will lead to a shift in the Phillips curve. (e) The inflation rate will always be equal to zero when short-run output is equal to zero.
Figure 17-5 Inflation rate (percent per year) 10% 5 0 Long-run Phillips curve 5.5% 7.5 Short-run Phillips curve Unemployment rate (percent)