### Understanding the Short-Run Phillips CurveThe following graph illustrates the current short-run Phillips curve for a hypothetical economy. This curve demonstrates the relationship between the unemployment rate and the inflation rate in the short run. The point on the graph represents the initial unemployment rate and inflation rate, assuming the economy is currently in long-run equilibrium.The central bank of this hypothetical economy decides to decrease the money supply.**Instruction:**On the following graph, shift the curve or move the blue point along the curve, or do both, to exhibit the short-run effects of the policy of decreasing the money supply.**Hint:** Assume that the central bank's move is unanticipated.#### Graph ExplanationThe graph includes:- **Y-Axis (Vertical):** Inflation Rate (Percent) - The range is from 0 to 6 percent.- **X-Axis (Horizontal):** Unemployment Rate (Percent) - The range is from 0 to 18 percent. The graph plots a downward-sloping line labeled "SR Phillips Curve," which signifies the short-run Phillips curve. The line starts at an inflation rate of 6 percent with a 0 percent unemployment rate and ends at an 18 percent unemployment rate with a 0 percent inflation rate, showing an inverse relationship.A blue point is placed at an inflation rate of 3 percent and an unemployment rate of 9 percent, indicating the initial condition of the economy.#### Analysis of Policy ImpactIn the short run, an unanticipated decrease in the money supply results in:- a decrease in the inflation rate- an increase in the unemployment rateThis movement reflects the new position along the Phillips curve as the economy adjusts to the policy change. ---**Note to educators:** Teach how unanticipated changes in monetary policy can cause short-term fluctuations in unemployment and inflation rates, emphasizing the importance of understanding the Phillips curve for macroeconomic policy-making. ### Long-Run Effects of a Decrease in the Money Supply#### Understanding the GraphThe graph provided illustrates the relationship between the unemployment rate (x-axis) and the inflation rate (y-axis). - **Horizontal Axis (x-axis):** Represents the unemployment rate in percentage.- **Vertical Axis (y-axis):** Represents the inflation rate as a percentage.The diagonal line on the graph represents the Phillips Curve, which shows the inverse relationship between the inflation rate and the unemployment rate. There is a blue point on the graph that can be moved along the curve to represent different inflation and unemployment scenarios.#### Key Observations:- **Initial Position:** The blue point on the graph is initially positioned where the inflation rate is at 3% and the unemployment rate is at 9%.- **Adjustments:** The graph allows manipulation to show potential long-run effects due to a change in the money supply.#### Explanation of the Long-Run EffectsIn the long run, a decrease in the money supply typically results in changes to both the inflation rate and the unemployment rate:1. **Decrease in Inflation Rate:** A decrease in the money supply often leads to a reduction in inflation. This is due to lower demand-pull inflation as there is less money circulating in the economy.2. **Impact on Unemployment Rate:** The long-term impact on the unemployment rate can vary. However, classical economic theory posits that, in the long run, unemployment tends to return to its natural rate, unaffected by changes in the money supply.---#### Text ExplanationBelow the graph, a text is provided for further explanation:> "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)." To answer this:- The inflation rate decreases due to the reduced money supply.- The long-term effect on unemployment is more complex, but it often returns to a natural rate, suggesting minimal long-term changes in unemployment due to money supply changes alone.#### Educational TakeawayThrough this exercise, the learner can understand how monetary policy, particularly changes in the money supply, impacts economic indicators such as inflation and unemployment both in the short run and long run.

Short run Philips curve shows inverse relationship between inflation and unemployment rate

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. INFLATION RATE (Percent) 5 0 0 3 SR Phillips Curve 9 12 UNEMPLOYMENT RATE (Percent) 15 18 In the short run, an unexpected decrease in the money supply results in unemployment rate. OF SR Phillips Curve in the inflation rate and in the

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. INFLATION RATE (Percent) 5 0 0 3 SR Phillips Curve 9 12 UNEMPLOYMENT RATE (Percent) 15 18 In the short run, an unexpected decrease in the money supply results in unemployment rate. OF SR Phillips Curve in the inflation rate and in the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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part B
A well-known economic model called the Phillips Curve (discussed in The Keynesian Perspective) describes the short run tradeoff typically observed between inflation and unemployment. Based on expansionary and contractionary monetary policy, explain why one of these variables usually falls when the other rises.
MA4. 13. If the equation for a country's Phillips curve is π = 0.05 – 0.8(u – 0.05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 3 percent (0.03)? A) .066 B) -.056 C) -.066 D) .056 11. The aggregate supply equation is Y = Y + α(P – EP). Assume that Y is 2,000, α = 200, P = 1.12 and EP = 1.00. What is the value of Y? A) 2,232 B) 2,024 C) 2,400 D) 2,012 9. If policymakers announce in advance how policy will respond to various situations but then renege on their announcements, this a problem of: A) policy by rule. B) policy by discretion. C) time inconsistency of policy. D) monetary policy. 10. According to the sticky-price model, output will be above the natural level if: A) firms expect a high price level and the demand for goods is high. B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices. C) the price level is above the…
"Considering the Taylor Rule for monetary policy, which action would a central bank most likely take if the actual inflation rate is below the target inflation rate and the real GDP is above the potential GDP? A) Increase the interest rate to reduce inflation. B) Decrease the interest rate to stimulate inflation. C) Keep the interest rate unchanged, as the effects on inflation and GDP are offsetting. D) Increase the money supply to reduce the real GDP to its potential level.
A well-known economic model called the Phillips curve (discussed in the Keynesian Perspective chapter) describes the short run trade off typically observed between inflation and unemployment. Based on the discussion of expansionary and contraction monetary policy, explain why one of these variables usually falls when the other rises.
According to the short-run Phillips curve, if the central bank increases the money supply, then inflation and unemployment will both fall. inflation and unemployment will both rise. inflation will fall and unemployment will rise. inflation will rise and unemployment will fall.
During a period of high inflation, a country's central bank decides to use a monetarist model, which focuses on controlling the money supply to stabilize prices. The bank implements policies to reduce the growth rate of the money supply, based on the theory that inflation is primarily caused by excessive growth in money supply. The main goal of adopting a monetarist approach in this case is to:A) Increase the money supplyB) Control inflation and stabilize the economyC) Decrease government spending and taxesD) Encourage rapid economic growth Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism.Answer completely and accurate answer.Rest assured, you will receive an upvote if the answer is accurate.
The following graph plots a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve (LRPC), or both. As anticipated, inflation (rises/falls) and the short-run Phillips curve shifts (downward/upward) , highlighting the cost of fighting inflation, which is (higher unemployment in the long run/temporary unemployment/lower unemployment) . Which of the following examples represents a cost of inflation? Check all that apply. -An unintended redistribution of wealth from borrowers to lenders -A general decrease in purchasing power -Increased variability of relative prices -A coffee shop’s costs to reprint its menu to reflect fluctuating prices
Question 9 Using the Fed model linking the IS-MP framework with the Phillips curve, draw a graph that illustrates the following scenario: Expected inflation is 1.5%. The economy is initially in macroeconomic equilibrium with a real interest rate of 3%, an output gap of -1%, and an actual inflation rate of 1%. Upload Choose a File
If we use the simple monetary policy rule R: = F + m(Tt – ñ), and the IS curve equation Yt = ā – b(R¢ – F), and inflation evolving according to the Phillips T +vÝt,with inflation expectations formed using T Curve equation: Tt %3D Tt-1. We observe: D = 0.5 marginal product of capital is 5%, target rate of inflation is 3%, the current rate of inflation is 6%, m = 0.6, b = 0.7: Solve for the rate of inflation at time t+1. Enter you answer in percent rounded to one decimal place, but do not use any % symbol. This means something like 4.3% would just be entered "4.3". Type your answer.