Which of the following represents the short-run effect of an increase in government spending? The economy moves to point D. O The economy moves to point B. O The economy moves to point H. O The economy moves to point F. What would be the long-run impact of an increase in government spending? The economy remains at point E. O The economy moves to point A. O The economy moves to point G. The economy moves to point C.
Which of the following represents the short-run effect of an increase in government spending? The economy moves to point D. O The economy moves to point B. O The economy moves to point H. O The economy moves to point F. What would be the long-run impact of an increase in government spending? The economy remains at point E. O The economy moves to point A. O The economy moves to point G. The economy moves to point C.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Assume that the economy is initially at point E, with an expected and actual rate of inflation of 6% and an unemployment rate of 5%.
Which of the following represents the short-run effect of an increase in government spending?
O The economy moves to point D.
The economy moves to point B.
O The economy moves to point H.
O The economy moves to point F.
What would be the long-run impact of an increase in government spending?
The economy remains at point E.
O The economy moves to point A.
O The economy moves to point G.
The economy moves to point C.
Which of the following statements is correct?
O The long-run Phillips curve shows the positive relationship between unemployment and inflation in the long run.
O The long-run unemployment rate is 3%.
O In the long run, changes in the inflation rate have no effect on unemployment.
O The long-run Phillips curve illustrates the temporary tradeoff between unemployment and inflation.
Transcribed Image Text:4. The long-run Phillips curve
This graph shows the long-run Phillips curve (LRPC) and several of the short-run Phillips curves (PC) for an economy.
INFLATION RATE (Percent)
15
ថា
12
3
0
0
1
PC₁
PC₂ PC3
2
X0
LRPC
4
C
F
X
F
3
5
6
UNEMPLOYMENT RATE (Percent)
H
7
8
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