In the graph you've just made, what is the unemployment rate and the inflation rate if the Fed overstimulates but the expected inflation rate remains at 2 percent? The unemployment rate _______ percent and the inflation rate _______ percent.A. decreases to 4; rises to 3B. remains at 8; remains at 1C. decreases to 5; rises to 4D. decreases to 5; rises to 2 But the Fed mightoverstimulate and makethe unemployment ratefall below the naturalunemployment rate andraise the inflation rateabove the expected rate,like the graph now shows.If too much monetary stimulusraises the expected inflationrate, the short-run Phillipscurve shifts upward and theeconomy moves to point C.ResetInflation rate (percent per year)65320Expectedinflationrate risesExpectedinflation rate12 3LRPCсBNaturalunemploymentrateSRPC₁SRPC9 105 6 7 8Unemployment rate (percent per year)

Phillips curve shows the relationship between the inflation rate and the unemployment rate. The…

Answered: In the graph you've just made, what is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the graph you've just made, what is the unemployment rate and the inflation rate if the Fed overstimulates but the expected inflation rate remains at 2 percent? The unemployment rate _______ percent and the inflation rate _______ percent.

A. decreases to 4; rises to 3

B. remains at 8; remains at 1

C. decreases to 5; rises to 4

D. decreases to 5; rises to 2

But the Fed might
overstimulate and make
the unemployment rate
fall below the natural
unemployment rate and
raise the inflation rate
above the expected rate,
like the graph now shows.
If too much monetary stimulus
raises the expected inflation
rate, the short-run Phillips
curve shifts upward and the
economy moves to point C.
Reset
Inflation rate (percent per year)
6
5
3
2
0
Expected
inflation
rate rises
Expected
inflation rate
1
2 3
LRPC
с
B
Natural
unemployment
rate
SRPC₁
SRPC
9 10
5 6 7 8
Unemployment rate (percent per year)

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