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The graph shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. The Fed announces that it will slow the money growth rate so that inflation will fall to 2.5 percent a year. If no one believes the Fed, but the Fed keeps inflation at 2.5 percent for many years, explain the effect of the Fed's action on inflation and unemployment. O A. The inflation rate and unemployment rate fluctuate: first unemployment rises above 6 percent, then falls below 6 percent, and finally returns to 6 percent. The inflation rate keeps falling through this cycle in unemployment. B. At first, the unemployment rate rises above 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate falls toward 6 percent. O C. No changes occur to either the inflation rate or the unemployment rate. Changes only occur if people believe the Fed. D. The inflation rate falls toward 2.5 percent and the unemployment rate remains constant at 6 percent. O E. At first, the unemployment rate falls below 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate rises toward 6 percent.

The graph shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. The Fed announces that it will slow the money growth rate so that inflation will fall to 2.5 percent a year. If no one believes the Fed, but the Fed keeps inflation at 2.5 percent for many years, explain the effect of the Fed's action on inflation and unemployment. O A. The inflation rate and unemployment rate fluctuate: first unemployment rises above 6 percent, then falls below 6 percent, and finally returns to 6 percent. The inflation rate keeps falling through this cycle in unemployment. B. At first, the unemployment rate rises above 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate falls toward 6 percent. O C. No changes occur to either the inflation rate or the unemployment rate. Changes only occur if people believe the Fed. D. The inflation rate falls toward 2.5 percent and the unemployment rate remains constant at 6 percent. O E. At first, the unemployment rate falls below 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate rises toward 6 percent.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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The graph shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. Inflation rate (percent per year) 12.5 LRPC The Fed announces that it will slow the money growth rate so that inflation will fall to 2.5 percent a year. If no one believes the Fed, but the Fed keeps inflation at 2.5 percent for many years, explain the effect of the Fed's action on inflation and unemployment. 10.0- O A. The inflation rate and unemployment rate fluctuate: first unemployment rises above 6 percent, then falls below 6 percent, and finally returns to 6 percent. The inflation rate keeps falling through this cycle in unemployment. 7.5- 5.0- O B. At first, the unemployment rate rises above 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate falls toward 6 percent. SRPC 2.5- O C. No changes occur to either the inflation rate or the unemployment rate. Changes only occur if people believe the Fed. > O D. The inflation rate falls toward 2.5 percent and the unemployment rate 0.0- 10 remains constant at 6 percent. Unemployment rate (percent of labor force) O E. At first, the unemployment rate falls below 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate rises toward 6 percent. empts Next
Transcribed Image Text:The graph shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. Inflation rate (percent per year) 12.5 LRPC The Fed announces that it will slow the money growth rate so that inflation will fall to 2.5 percent a year. If no one believes the Fed, but the Fed keeps inflation at 2.5 percent for many years, explain the effect of the Fed's action on inflation and unemployment. 10.0- O A. The inflation rate and unemployment rate fluctuate: first unemployment rises above 6 percent, then falls below 6 percent, and finally returns to 6 percent. The inflation rate keeps falling through this cycle in unemployment. 7.5- 5.0- O B. At first, the unemployment rate rises above 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate falls toward 6 percent. SRPC 2.5- O C. No changes occur to either the inflation rate or the unemployment rate. Changes only occur if people believe the Fed. > O D. The inflation rate falls toward 2.5 percent and the unemployment rate 0.0- 10 remains constant at 6 percent. Unemployment rate (percent of labor force) O E. At first, the unemployment rate falls below 6 percent and the inflation rate falls. Later, as the inflation rate approaches 2.5 percent a year, the unemployment rate rises toward 6 percent. empts Next
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