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True or false? According to the Phillips curve, in the long run there is a trade-off between inflation and unemployment

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section16.2: The Controversy Begins: Are There Really Two Phillips Curves?

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True or false?

According to the Phillips curve, in the long run there is a trade-off between inflation and unemployment

Definition Definition State in which an individual is without work, despite actively seeking employment opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed. Unemployment is one of the key indicators of the conditions prevailing in an economy. It is therefore considered a barometer that points out the condition of an economy.

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If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not?
What is the Phillips Curve, and how does it relate to the trade-off between inflation and unemployment?
From your understanding what the Phillips curve is, is it possible for the unemployment rate to increase while inflation also increases? Explain.
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What is the Phillips Curve? Explain the theory behind it carefully.
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An economy has the following equation for the Phillips Curve: π = Eπ − 0.5(u − 6)People form expectations of inflation by taking a weighted average of the previous two years of inflation: Okun’s law for this economy is: Eπ = 0.7π−1 + 0.3π−2 (Y −Y−1)/(Y-1)=3.0−2.0(u−u−1) Th economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. 1. What is the natural rate of unemployment for this economy? 2. Graph the short-run tradeoff between inflation and unemployment that this economy faces. Label the point where the economy begins as A. 3. A fall in aggregate demand leads to a recession, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph, label the point the economy experiences that year as point B.
According to the Phillips curve, there is an inverse relationship between inflation and unemployment. It is possible for policymakers to “buy” lower unemployment by allowing higher inflation. Using a Phillips curve, illustrate and explain how nationwide rioting and looting will impact the economy and why this supply shock has implications for policymakers
Which of the following is true about the Phillips curve? The empirical relationship between unemployment and inflation in the US disappeared after the 1970s. This means that the theoretical Phillips curve does not represent the world well. For a researcher to identify the theoretical Phillips curve from empirical data, the economy must be subject to supply shocks. The empirical Phillips curve implies that a government must choose between either low unemployment and high inflation or high unemployment and low inflation. When inflation expectations adjust, the negative empirical correlation between inflation and unemployment might disappear.
Derive the original Phillips curve and answer the following questions:a) What effect does an increase in the expected price level have on the price level?b) What effect does an increase in the unemployment rate have on the price level?c) What effect does a decrease in business competition have on inflation?d) What is the effect of liberalizing foreign trade?e) What effect does the formation of trade unions have?
When you graph the Phillips curve, what goes on the y-axis? Change in inflation Rate of inflation Change in consumer price Change in short-run output