Question 715.0%14.0%13.0%12.0%11.0%.10.0%9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%Inflation Rate (n)down to0decreases to5.041,0002,00010.043,0004,0005,000Consider the graph above. It is also in the files folder under the name Short Run andthe Long Run. The graph pertains to a hypothetical country. The central bank in thiscountry (also called the Fed) follows an inflation targeting policy. The current targetinflation rate in 8 percent (I know, it is too high. We will deal with this problem laterafter appointing a new chairperson for the Fed). The natural rate of unemployment is5 percent and Okun's alpha is 8.7000.00LRASSuppose that consumer confidence in the economy declines and as a result ADdecreases by 3,000 units. This reduction in demand causes the inflation rate to slow7.00percent in the short run. In the short run, the real GDPpercent.ADReal GDP (Y)SRAS6,0007,0008,0009,00010,0003 11,00012,00013,00014,00015,00016.00017,00018,00019,00020,000units. Cyclical unemployment increases topercent resulting in an overall unemployment rate ofIf the Fed does not take any action and the recession turns out to be long-lived, theinflation rate will change over time and will equal 5.00percent in thelong run.

The decrease in the AD means that the demand in the economy declines and hence the decline in the…

Consider the graph above. It is also in the files folder under the name Short Run and the Long Run. The graph pertains to a hypothetical country. The central bank in this country (also called the Fed) follows an inflation targeting policy. The current target inflation rate in 8 percent (I know, it is too high. We will deal with this problem later after appointing a new chairperson for the Fed). The natural rate of unemployment is 5 percent and Okun's alpha is 8. Suppose that consumer confidence in the economy declines and as a result AD decreases by 3,000 units. This reduction in demand causes the inflation rate to slow down to 7.00 percent in the short run. In the short run, the real GDP decreases to 5.04 7000.00 units. Cyclical unemployment increases to percent resulting in an overall unemployment rate of

Consider the graph above. It is also in the files folder under the name Short Run and the Long Run. The graph pertains to a hypothetical country. The central bank in this country (also called the Fed) follows an inflation targeting policy. The current target inflation rate in 8 percent (I know, it is too high. We will deal with this problem later after appointing a new chairperson for the Fed). The natural rate of unemployment is 5 percent and Okun's alpha is 8. Suppose that consumer confidence in the economy declines and as a result AD decreases by 3,000 units. This reduction in demand causes the inflation rate to slow down to 7.00 percent in the short run. In the short run, the real GDP decreases to 5.04 7000.00 units. Cyclical unemployment increases to percent resulting in an overall unemployment rate of

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 37P: Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time...

See similar textbooks

Similar questions

The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.
With in 1 or 2 percentage points, what has the U.S. inflation rate been during the last 20 years? Draw a graph to show the data.
Compute the inflation rate for fruit prices from 2001 to 2004.
A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3, what would likely happen to a homeowner with an adjustable-rate mortgage?
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
How does indexing wage contracts to inflation help workers?
Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?
What is deflation?
What has been a typical range of inflation in the U.S. economy in the last decade or so?
Why does the quality/new goods bias arise if we calculate the inflation rate based on a fixed basket of goods?
Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at measuringWorth.com. How much money would it take today to purchase what one dollar would have bought in the year of your birth?
A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?