6. Assume initially, inflation expectations are equal to 4%, and there is no shocks to cost or inflation expectations. Draw the AS curve, labeling it ASo. Draw a vertical line where short-run output is equal to 0, and label the numerical value for inflation expectations on the appropriate axis. Show how each of the following events shifts the AS curve, using both the diagram and writing up a brief explanation. (a) A new technology suddenly lowers cost for all firms. (b) Worker unions negotiate better pay for all their members. (c) Firms suddenly expect inflation to be equal to 3%.

6. Assume initially, inflation expectations are equal to 4%, and there is no shocks to cost or inflation expectations. Draw the AS curve, labeling it ASo. Draw a vertical line where short-run output is equal to 0, and label the numerical value for inflation expectations on the appropriate axis. Show how each of the following events shifts the AS curve, using both the diagram and writing up a brief explanation. (a) A new technology suddenly lowers cost for all firms. (b) Worker unions negotiate better pay for all their members. (c) Firms suddenly expect inflation to be equal to 3%.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

6. Assume initially, inflation expectations are equal to 4%, and there is no shocks to
cost or inflation expectations. Draw the AS curve, labeling it ASq. Draw a vertical
line where short-run output is equal to 0, and label the numerical value for inflation
expectations on the appropriate axis. Show how each of the following events shifts
the AS curve, using both the diagram and writing up a brief explanation.
(a) A new technology suddenly lowers cost for all firms.
(b) Worker unions negotiate better pay for all their members.
(c) Firms suddenly expect inflation to be equal to 3%.
(d) A supply shock leads to a rise in commodity prices.

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Suppose that for years East Confetti's short-run Phillips Curve was such that each 1 percentage point increase in its unemployment rate was associated with a 4 percentage point decline in its inflation rate. Then, during several recent years, the short-run pattern changed such that its inflation rate rose by 3 percentage points for every 1 percentage point drop in its unemployment rate. Graphically, did East Confetti's Phillips Curve shift upward or did it shift downward? |(Click to select) V
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