Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 31, Problem 10SPPA
To determine
The effect on inflation and
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Economics
Complete the graph
Inflation rate
Unemployment rate
(percentage)
12
(percent per year)
4.
15
3
5
2
I FIGURE 15.1
1. The table above has data on the inflation rate
and the unemployment rate.
a. Using the data, label the axes and plot the
short-run Phillips curve in Figure 15.1. Label the
curve SRPC.
b. What is the effect of a decrease in the
unemployment rate from 8 percent to 5 percent?
Show the effect in Figure 15.1.
c. How does your answer to question (b) indicate
the presence of a tradeoff?
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Chapter 31 Solutions
Foundations of Economics (8th Edition)
Ch. 31 - Prob. 1SPPACh. 31 - Prob. 2SPPACh. 31 - Prob. 3SPPACh. 31 - Prob. 4SPPACh. 31 - Prob. 5SPPACh. 31 - Prob. 6SPPACh. 31 - Prob. 7SPPACh. 31 - Prob. 8SPPACh. 31 - Prob. 9SPPACh. 31 - Prob. 10SPPA
Ch. 31 - Prob. 11SPPACh. 31 - Prob. 1IAPACh. 31 - Prob. 2IAPACh. 31 - Prob. 3IAPACh. 31 - Prob. 4IAPACh. 31 - Prob. 5IAPACh. 31 - Prob. 6IAPACh. 31 - Prob. 7IAPACh. 31 - Prob. 8IAPACh. 31 - Prob. 9IAPACh. 31 - Prob. 10IAPACh. 31 - Prob. 1MCQCh. 31 - Prob. 2MCQCh. 31 - Prob. 3MCQCh. 31 - Prob. 4MCQCh. 31 - Prob. 5MCQCh. 31 - Prob. 6MCQ
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- The Phillips curve is A. a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed. B. a positive relationship in the long run between the rate of inflation and the rate of unemployment. C. a negative relationship between the inflation rate and the unemployment rate, at least in the short run. D. a positive relationship between the unemployment rate and the real Gross Domestic Product (GDP) level.arrow_forwardwhich of the following is true Select one: a. When the actual rate of unemployment is low than natural rate, the inflation rate decreases b. natural rate of unemployment is that rate of unemployment required to keep the inflation rate constant c. When the actual rate of unemployment is higher than natural rate, the inflation rate increases d. the natural rate can never be the non-accelerating inflation rate of unemploymentarrow_forward1. Assume that in an economy the phillips curve is: At = -0,8 (U-Un) + p Last year's inflation was 0,08, current inflation is 0,08, unemployment rate is 0,04 and the price shock is 0,01. What is the natural rate of unemployment? 2. The price level is 143, the inflation rate is 0,08, the nominal money supply is 12785, the nominal interest rate is 0,13 percent. Calculate the seignorage.arrow_forward
- Suppose that an economy has the Phillips curve π = π−1 − 0.5( u − 0.06). a. What is the natural rate of unemployment? b. Graph the short-run and long-run relationships between inflation and unemployment. c. How much cyclical unemployment is necessary to reduce inflation by 5 percentage points? Using Okun’s law, compute the sacrifice ratio. d. Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give two scenarios that will achieve that goal.arrow_forwardINFLATION RATE (Percent) 1 2 5. Expectations and the Phillips curve The following graph shows an economy in long-run equilibrium at point A (grey star symbol). The vertical line is the long-run Phillips curve (LRPC). The downward-sloping curve labeled SRPC is the short-run Phillips curve passing through point A. SRPC LRPC 0 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent) Which of the following is true along SRPC? O The expected inflation rate is 5%. The natural rate of unemployment is 3%. The actual unemployment rate is 6%. • } - * SRPC2 ㄢ C (?) Suppose that the Fed suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated action, actual inflation falls to 3%. On the previous graph, use the black point (plus symbol) to illustrate the short-run effects of this policy. Now, suppose that-after a period of 3% inflation-households and firms begin to expect that the inflation rate will continue to be 3%. On the previous graph, use…arrow_forwardSuppose that the government in the economy of the diagram below regards 9 percent unemployment as unacceptable. If the government insists on reducing the unemployment rate from 9 percent to 7 percent, regardless of the consequences, thena. pressure will build in the economy to continuously reduce the rate of inflation.b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment.c. the inflation rate will increase but the unemployment rate will stay at 7 percent.d. in the long run the rate of unemployment remains unchanged, but inflation will likely accelerate. Give explanations for the correct onearrow_forward
- Suppose people expect the inflation rate to be 3 percent. The government engages in a one-time expansionary monetary policy in order to lower unemployment. Once people realize what has happened A. the Phillips curve will shift inward, causing unemployment to return to its natural rate. B. the Phillips curve will shift outward, causing unemployment to return to its natural rate. C. there will be a movement down along the Phillips curve, causing unemployment to return to its original level. D. there will be a movement along the Phillips curve, causing the inflation rate to return to 3 percent.arrow_forward9. 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.arrow_forward3arrow_forward
- I'd like help on first 3 subsectionsarrow_forwardWhat is true along the long-run Phillips curve? A. A labor shortage exists. B. A tradeoff exists between the inflation rate and the unemployment rate. C. The economy is at full employment. D. The inflation rate equals the expected inflation rate and any unemployment rate is possible.arrow_forward10arrow_forward
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