Answered: The Phillips curve in the late 20th…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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9. The Phillips curve in the late 20th century

The following table presents historical unemployment and inflation data in the United States for the years 1977 through 1981.

Year	Unemployment Rate	Inflation Rate
(Percent)	(Percent)
1977	7.1	6.5
1978	6.1	7.6
1979	5.8	11.3
1980	7.1	13.5
1981	7.6	10.3

Plot the data for these five years on the following graph.

Note: You will not be graded on how you plot the points, but plotting the points accurately on the graph will help you examine the relationship between unemployment and inflation during this period and solve the problems that follow.

The following graph shows the short-run Phillips curve (SRPC) for the United States in 1977.
Shift the curve to illustrate what happened between 1977 and 1981.
INFLATION RATE
SRPC
UNEMPLOYMENT RATE
PRICE LEVEL
The following graph shows the aggregate demand (AD) and short-run aggregate supply (AS) curves for the United States in 1977.
Shift the aggregate supply curve to approximate what happened between 1977 and 1981.
AD
SRPC
OUTPUT
AS
AD
AS
(?)

9. The Phillips curve in the late 20th century
The following table presents historical unemployment and inflation data in the United States for the years 1977 through 1981.
Year
1977
1978
1979
1980
1981
INFLATION RATE (Percent)
Plot the data for these five years on the following graph.
Note: You will not be graded on how you plot the points, but plotting the points accurately on the graph will help you examine the relationship
between unemployment and inflation during this period and solve the problems that follow.
15
14
13
Unemployment Rate
(Percent)
7.1
6.1
5.8
7.1
7.6
6
3
Inflation Rate
(Percent)
6.5
7.6
11.3
13.5
10.3
6
5
7
UNEMPLOYMENT RATE (Percent)
8
9
10
11
+
Data Points
Which of the following statements most accurately describes the relationship between inflation and unemployment in the United States during this
time period?
O The short-run Phillips curve shifted to the left after actual inflation was lower than expected.
O The short-run Phillips curve remained stable.
O The short-run Phillips curve shifted to the right after actual inflation was higher than expected.

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