Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
100%
Please give a detailed solution to THE ENTIRE problem below. Make sure the answer is typed and the graphs are clearly visible and the movement as well.
Label the new points for the movements too. Make sure the answer is 100% and double-check your work. Read the question carefully!!!
Options For All Fill In The Blanks From Left To Right Top To Bottom:
a decrease or an increase or no change
Transcribed Image Text:The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate
and inflation rate. Assume that the economy is currently in long-run equilibrium.
Suppose the central bank of the hypothetical economy decides to decrease the money supply.
On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy.
Hint: You may assume that the central bank's move was unanticipated.
5
SR Phillips Curve
SR Phillips Curve
3
UNEMPLOYMENT RATE (Percent)
In the short run, an unexpected decrease in the money supply results in
v in the inflation rate and
v in the
unemployment rate.
INFLATION RATE (Percent)
Transcribed Image Text:On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money
supply.
5
1
2
3
UNEMPLOYMENT RATE (Percent)
In the long run, the decrease in the money supply results in
in the inflation rate and
in the unemployment rate
(relative to the economy's initial equilibrium).
NF LATION RATE (Percent)
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