Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:red Question 9
15.0%
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)
O
1,000
2,000
000's
000't
5,000
5,000
7,000
8,000
000'60
cyclical unemployment will be
LRAS
10,000
3 11,000
Real GDP (Y)
In the short run, the inflation rate will equal
12,000
12,000
13,000
13,000
14.000
14,000
000 30
percent.
AD
15,000
2009
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. The natural rate of unemployment is 5 percent and Okun's
alpha is 8.
SRAS
16,000
The oil producing countries unexpectedly and drastically increase oil prices. As a result
the short run aggregate supply function shifts up by 3 percentage points at each and
every level of real GDP.
17,000
18,000
19,000
20,000
If the Fed tries to bring the inflation rate back to the target level, the
cyclical unemployment will increase to
percent.
percent and
On the other hand, if the Fed lets go of its inflation targeting policy and instead tries
to solve the unemployment problem, the inflation rate will increase to
percent. This is what the Fed did in 1973 oil crisis.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education