MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Chapter 14, Problem 2QR
To determine
The relation between the
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What is The Short-Run and Long-Run Phillips Curves?
What is stagflation? How may it affect the Phillips Curve? What policy measures may be taken to reduce stagflation?
I can't find anything to back up that a decrease in aggregate demand causes cost push inflation. My textbook does mention the increase in aggregate supply. I thought that a decrease in price generally meant deflation? And doesn't the decrease (left shift) in aggregate demand result in lower prices?
Chapter 14 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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- What is the "Phillips Curve"? Why do inflation and unemployment tend to be inversely related?arrow_forwardHow do changes in aggregate demand and aggregate supply might cause inflation in the economy?arrow_forwardUse the New-Keynesian model with partial sticky price to briefly discuss the reasons of the current high inflation in Australia. Use the Aggregate supply-Aggregate Demand diagram to support your answer.arrow_forward
- Use aggregate demand and aggregate supply to explain the inverse relationship between inflation and unemplymentarrow_forwardPhillips Curve graph, aggregate model(side-by- side)- show the relationship between the Phillips model and the aggregate model if stagflation hits the economy(a supply shock) Draw a grapharrow_forward"As the economy moves upward along its aggregate supply curve, the economy also moves upward along its short-run Phillips curve." Is the previous statement correct or incorrect?arrow_forward
- What happens in the Phillips Curve diagram when the AS curve shifts?arrow_forwardWhen aggregate output is below the natural rate of output, what happens to the inflation rate over time if theaggregate demand curve remains unchanged? Why?arrow_forwardGraphically derive short run Phillips curve with the help of aggregate demand and supply and demand.arrow_forward
- Hi, could you help me solve this problem? Consider an increase in global oil and gas prices from the point of the euro area (that does not produce much oil or gas itself). Think of this shock as a supply shock and use the AD-AS -model to explain how it is likely to affect output (or unemployment) and inflation. How does your result relate to the original Phillips curve? Your answer should include a graph and a short explanation in words.arrow_forwardWould you expect to see long-run data trace out a stable downward-sloping Phillips curve?arrow_forwardAs described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram. LRAS Aggregate Supply Aggregate Demand XE 0 LRPC SRPC Unemployment Rate Price Level Inflation Rate Quantity of Output Aggregate Demand Equilibrium output will rise. The effect on the inflation rate will be ambiguous. The price level will fall. Unemployment will rise. Aggregate Supply LRAS Long-Run Equilibrium SRPC LRPC Long-Run Equilibrium (?) Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think only about the…arrow_forward
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