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An economy is currently in a recession. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. inflahen LRPC SRPC Unemployment. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? The expected inflation rate will be less than the actual inflation rake (c) Will borrowers with fixed-rate loans benefit from the situation that you identified in part (b)? Explain. Borrowers with Fixed rate loans will benefit from such situatione because the value of the iman will decrease a lower Inflation rate

An economy is currently in a recession. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. inflahen LRPC SRPC Unemployment. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? The expected inflation rate will be less than the actual inflation rake (c) Will borrowers with fixed-rate loans benefit from the situation that you identified in part (b)? Explain. Borrowers with Fixed rate loans will benefit from such situatione because the value of the iman will decrease a lower Inflation rate

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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An economy is currently in a recession. inflatin LRPC (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. SRPC Unemployment. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? The expected inflation rate will be be less than the actual inflation rate (c) Will borrowers with fixed-rate loans benefit from the situation that you identified in part (b)? Explain. Borrowers with Fixed-rate loans will benefit from such situation because the value of the loan will decrease with a lower Inflation rale with (d) Assume the government budget is balanced. In the absence of any discretionary policy action, will the government budget move into surplus, deficit, or remain in balance? Explain. The government budget will remain in balance in the absence of —any any discretionary policy (e) On your graph in part (a), show how the economy will adjust in the long run in the absence of any discretionary policy action. (f) Now assume instead the government increases spending without changing taxes to close the recessionary gap. What effect will this policy have on the national debt? in government spending without changing taxes will An increase cause the national debt to increase
Transcribed Image Text:An economy is currently in a recession. inflatin LRPC (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. SRPC Unemployment. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? The expected inflation rate will be be less than the actual inflation rate (c) Will borrowers with fixed-rate loans benefit from the situation that you identified in part (b)? Explain. Borrowers with Fixed-rate loans will benefit from such situation because the value of the loan will decrease with a lower Inflation rale with (d) Assume the government budget is balanced. In the absence of any discretionary policy action, will the government budget move into surplus, deficit, or remain in balance? Explain. The government budget will remain in balance in the absence of —any any discretionary policy (e) On your graph in part (a), show how the economy will adjust in the long run in the absence of any discretionary policy action. (f) Now assume instead the government increases spending without changing taxes to close the recessionary gap. What effect will this policy have on the national debt? in government spending without changing taxes will An increase cause the national debt to increase
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