Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 31, Problem 1MCQ
To determine
To identify:
The option that correctly explains the short-run
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Suppose that natural real GDP is constant For every 1
Suppose that natural real GDP is constant. For every 1 percent increase in the rate of inflation above its expected level, firms are willing to increase real GDP by 2 percent. The output ratio is initially 100 and the inflation rate equals 2 percent.
(a) Based upon the preceding information, draw the short-run Phillips Curve.
(b) What is the growth rate of nominal GDP in the economy?
An adverse supply shock raises the inflation rate associated with every output ratio by 3 percentage points.
(c) Draw the new short-run Phillips Curve.
(d) The government chooses to follow a neutral policy in response to this shock. What will be the growth rate of nominal GDP? What will be the new rate of inflation? What will be the output ratio?
(e) If the government chooses to follow an accommodating policy, what would be the new inflation rate? The output ratio? The growth rate of nominal GDP?
(f) If the government chooses to follow an…
Consider the Phillips curves depicted in the graph above. The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If expectations of inflation are not altered by the Fed's announcement, the rate of unemployment will be ________ in the short run.
a)less than 5.5 percent
b)5.5 percent
c)between 5.5 and 7.5 percent
d)7.5 percent
Question 18
Suppose the economy currently has an inflation rate of 7%.
Moreover, the slope of the economy's Phillips Curve is 1/2.
Over the next 3 years, short-run output is +4 percent, O
percent, and -2 percent. Based on this information you know
that the inflation rate at the end of the third year is
percent.
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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- Assuming the long-run Phillips curve is vertical, a consistent increase in money supply over a period of years will _________________ the unemployment rate and will _________________ the inflation rate? a) decrease; increase b) increase; decrease c) increase; have no effect on d) decrease; decrease e) have no effect on; increasearrow_forwardAccording to the figure below, Inflation Rate (percent) 8 7 6 3 2 1 0 b. PC2? PC2 % 1 % 2 PC₁ 3 4 Rightward AS shifts cause leftward Phillips curve shifts. 5 6 What inflation rate would occur if the unemployment rate were 5 percent, with Instructions: Round your responses to the nearest 0.5 percent (e.g., 1.0, 1.5, 2.0). a. PC₁? Unemployment Rate (percent) 7 8arrow_forwardSuppose that the Phillips curve is given by +0.1-2 U₂ and expected inflation is given by -(1-0) * +04-1 where 0 is equal to zero and x 0.02 and does not change. The economy is initially at the natural rate of unemployment, which is 5%, when the authorities decide to bring the unemployment rate down to 3% and hold it there forever. With 0 equal to zero, this will yield a 6% rate of inflation every year. Now suppose that in year (t+6), 0 changes to 1. 0 might increase in this way because OA government policy would mandate inflationary expectations. B. inflation expectations adapt to persistently positive inflation OC. inflation expectations change constantly. OD. inflation expectations always adapt immediately to the last period's inflation. In year (+6), the inflation rate will be % (Enter your response as an integer.) In year (+7), the inflation rate will be % (Enter your response as an integer.) In year (+8), the inflation rate will be%. (Enter your response as an integer)arrow_forward
- For each of the following scenarios, illustrate the effects of the development on both the short-run and long-run Phillips curves (SRPC and LRPC, respectively). 1. There is a fall in the natural rate of unemployment. 2. There is a decline in expected inflation. 3. There is a fall in government spending. 4. There is a rise in the price of imported oil.arrow_forwardHow does the modern view of the Phillips curve differ from the earlier view? ___The early view of the Phillips curve suggested that the Phillips curve shifts with changes in inflation expectations. Such a view failed to recognize that the Phillips curve is a fixed inverse relationship between inflation and unemployment. ___The early view of the Phillips curve suggested that the Phillips curve is fixed, with higher rates of inflation associated with lower rates of unemployment, and vice versa. Such a view failed to recognize the importance of inflation expectations in determining the position of the short-run Phillips curve. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardFigure 17-5 Inflation rate (percent per year) 10% 5 0 Long-run Phillips curve 5.5% 7.5 Short-run Phillips curve Unemployment rate (percent)arrow_forward
- 19) The occurrence of financial crowding out implies that: Short-run fiscal expansion increases the size of the public sector Long-run growth is adversely affected by public spending Domestic banks benefit at the expense of foreign banks The long-run Phillips curve is vertical Which of the following statements are true? Only Statement (1) is correct Statements (1) and (3) are correct (3) Statements (1) and (2) are correct (4) Statements (2) and (4) are correctarrow_forward3) Suppose that a fall in consumer spending causes a recession a)Illustrate the immediate changes in the economy using both an aggregate-supply/aggregate-demand diagram and a Phillips-curve diagram.On both graphs, label the initial long-run equilibrium as point A and the resulting short-run equilibrium as point B.What happens to inflation and unemployment in the short-run b)Now suppose that over time expected inflation changes in the same direction that actual inflation changes.What happens to the position of the short-run Phillips curve? After the recession is over, does the economy face a better or worse set of inflation-unemployment combinations? Explain.arrow_forwardHigh inflation rates are considered detrimental to a country's economy. Please describe and discuss the 2 major reasons that may induce a particular product seller to raise its product price. Please discuss and describe how high inflation levels may affect negatively participants in the 2 major groups of economic decision-makers.arrow_forward
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