The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve .

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Answer 1

Question

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

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Short Description Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 800 billion dollars with an increment of 40 billion dollars, and the y-axis is scaled from 30 to 150 units with an increment of 5 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (160, 70)Point 2 at (720, 140)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (80, 110)Point 2 at (640, 40)A vertical Long-run Aggregate Supply, LRAS with two endpoints:Point 1 at (400, 145)Point 2 at (400, 30)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (720, 60)Point 2 at (160, 130)Two Reference Points:Lines AS, AD, and LRAS intersect at (400, 100)Lines AS and AD1 intersect at (280, 85) a. How much does aggregate demand need to change to restore the…

Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 1000 billion dollars with an increment of 50 billion dollars, and the y-axis is scaled from 0 to 180 units with an increment of 10 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (200, 40)Point 2 at (800, 160)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (200, 160)Point 2 at (800, 40)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (350, 170)Point 2 at (900, 60)A vertical Long-run Aggregate Supply, LRAS line with two endpoints:Point 1 at (500, 170)Point 2 at (500, 0)Two Reference Points:Lines AS and AD1 intersect at (600, 120)Lines AS, AD, and LRAS intersect at (500, 100) a. How much does aggregate demand need to change to restore the…

a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

Answer 2

Question

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

Answer 6

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

Answer 7

Chapter 17, Problem 17.1.2RQ

To determine

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Answer 8

Expert Solution & Answer

Explanation of Solution

The Phillips curve is used by the economists to depict the short-run relation between the inflation rate and the unemployment rate in an economy. The inflation rate and the unemployment rate are the two evils which every economy tries to minimize in the short-run as well as in the long-run. But, the government cannot reduce them both at the same time. When they focus on reducing the unemployment rate, it will lead to an increase in the inflation rate and vice versa. This trade-off between the inflation rate and unemployment is explained with the help of the Phillips curve.

In order to eradicate unemployment, the FED would like to take the expansionary monetary policy which injects new money to the economy with which the per capita income of the people will increase and induce the consumption and production in the economy; this will in turn increase the demand for labor and reduce the rate of unemployment in the economy. But at the same time, the increase in the demand will also lead to an increase in the price level in the economy.

Thus, the expansionary monetary policy by the FED increases the aggregate demand of the economy, which will cause the real GDP to increase along with the price level and lowering the rate of unemployment in the economy. So in order to move from a point on Phillips curve which represents higher unemployment rate with lower inflation rate to a point where the unemployment rate is lower and the inflation rate is higher, the FED should undertake the expansionary monetary policy.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Concept introduction:

Phillips curve: Phillips curve shows the relationship and trade-off between the inflation rate and unemployment rate in an economy during the short-run period.

Answer 12

Ch. 17 - Prob. 17.1.2RQ Ch. 17 - Prob. 17.1.3RQ Ch. 17 - Prob. 17.1.4RQ Ch. 17 - Prob. 17.1.5PA Ch. 17 - Prob. 17.1.6PA Ch. 17 - Prob. 17.1.7PA Ch. 17 - Prob. 17.1.8PA Ch. 17 - Prob. 17.1.9PA Ch. 17 - Prob. 17.1.10PA Ch. 17 - Prob. 17.1.11PA

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve .

Solution Summary: The author explains how the Phillips curve depicts the short-run relationship between inflation and unemployment in an economy.

The actions of FED to move from high unemployment and lower inflation to low unemployment and high inflation point on Phillips curve.

Explanation of Solution

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