The diagram on the right shows the short-run and long-run Inflation Rate (%) Phillips curves for an economy. a. b. C. What is the economy's noncyclical rate of unemployment? What is the expected rate of inflation? Starting from Point A, suppose asset prices rise, which leads to an increase in consumption and increase in aggregate demand. In the short run, will the economy move to a point like Point B or a point like Point C in the diagram or stay at Point A? 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.5 2.5 3.5 4.5 5.5 6.5 unemp 7.5 rate (0-

The diagram on the right shows the short-run and long-run Inflation Rate (%) Phillips curves for an economy. a. b. C. What is the economy's noncyclical rate of unemployment? What is the expected rate of inflation? Starting from Point A, suppose asset prices rise, which leads to an increase in consumption and increase in aggregate demand. In the short run, will the economy move to a point like Point B or a point like Point C in the diagram or stay at Point A? 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 1.5 2.5 3.5 4.5 5.5 6.5 unemp 7.5 rate (0-

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Note:Hand written solution is not accepted.

2.
The diagram on the right shows the short-run and long-run
Phillips curves for an economy.
What is the economy's noncyclical rate of
unemployment?
What is the expected rate of inflation?
Starting from Point A, suppose asset prices rise,
which leads to an increase in consumption and
increase in aggregate demand. In the short run,
will the economy move to a point like Point B or a
point like Point C in the diagram or stay at Point
A?
a.
b.
C.
Inflation
Rate (%)
LRPC
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
NPC
0.0
1.0 2.0 3.0 4.0 5.0 6.0 7.0
1.5 2.5 3.5 4.5 5.5 6.5
unemp.
7.5 rate (%

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Step 1: Define the short run and long run Phillips curve:

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Step 2: Determine the noncyclical rate of unemployment:

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Step 3: Determine the expected rate of inflation:

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Step 4: Determine the impact of increase in aggregate demand on short run Phillips curve:

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