Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 31, Problem 6IAPA
To determine
To explain:
The direction in which
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Using what you know about the Phillips curve, determine whether the following quantities will increase, decrease, or remain the same.
a. Unemployment in the short run after an increase in inflation: (Click to select) v
b. Unemployment in the long run after an increase in inflation: (Click to select) v
c. Inflation in the short run after a decrease in unemployment: (Click to select)
d. Inflation in the long run after a decrease in unemployment: (Click to select)
|(Click to select)
decrease
increase
remain the same
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.
INFLATION RATE (Percent)
ཝ་ཤ་ཁ་ཀ་༥
1
SRPC
LRPC
0
0
1
2
3
UNEMPLOYMENT RATE (Percent)
Which of the following is true along SRPC?
The natural rate of unemployment is 2%.
The actual unemployment rate is 1%.
The expected inflation rate is 2%.
SRPC2
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Suppose that the Fed suddenly and unexpectedly increases the money supply in an effort to reduce unemployment. As a result of this unanticipated
action, actual inflation rises to 5%.
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 5% inflation-households and firms begin to expect that the inflation rate will continue to be 5%.
On the previous graph, use the purple line (diamond symbol) to draw SRPC₂, the…
According to the St. Louis Federal Reserve the natural unemployment rate is 4.42 percent (Q4
2023 ) and the U.S. Bureau of Labor Statistics (BLS) estimates the U.S. unemployment rate
(U3, October 2023 B) to be 3.9 percent. If you expect unemployment to continue to fall the
short-run Phillips curve would predict:
OA decrease in the inflation rate.
An increase in the inflation rate.
○ A decrease in the unemployment rate.
○ An increase in the unemployment rate.
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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Similar questions
- According to the Phillips curve, there is an inverse relationship between inflation and unemployment. It is possible for policymakers to “buy” lower unemployment by allowing higher inflation. Using a Phillips curve, illustrate and explain how nationwide rioting and looting will impact the economy and why this supply shock has implications for policymakersarrow_forwardWhat policies can government put in place in ensure a balance between unemployment and inflations knowing the Phillips Curve hypothesizes that there is a correlation between inflation and unemployment. When inflation is high, unemployment is low. Conversely, when inflation is low, unemployment levels increase.arrow_forwardUsing the Phillips curve: imagine a country is having a higher unemployment rate than usual for a longperiod of time (higher than the natural rate). What should happen in the short term and in the longterm?arrow_forward
- From your understanding what the Phillips curve is, is it possible for the unemployment rate to increase while inflation also increases? Explain.arrow_forwardThe 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 7 SRPC, 1 1 2 3 4 5 7 8 UNEMPLOYMENT RATE (Percent) Which of the following is true along SRPC,? The actual unemployment rate is 6%. The expected inflation rate is 5%. The actual inflation rate is 5%. The natural rate of unemployment is 3%. INFLATION RATE (Perent)arrow_forward1. Problems and Applications Q1 Consider the following four situations: A. Actual inflation is 6 percent, and expected inflation is 6 percent. B. Actual inflation is 4 percent, and expected inflation is 6 percent. C. Actual inflation is 4 percent, and expected inflation is 4 percent. D. Actual inflation is 6 percent, and expected inflation is 4 percent.arrow_forward
- In which situation will the economy move to a point on the Phillips curve where unemployment is higher? if the inflation rate increases if the government increases its expenditures if the Bank of Canada decreases the money supply if expected inflation increasesarrow_forwardTrue or false? According to the Phillips curve, in the long run there is a trade-off between inflation and unemploymentarrow_forwardYou observe the following short-run Phillips curve for the economy: T = 9.2 -0.26(u - 6.5%) + v. There are no supply shocks to the economy, and the actual unemployment rate is 6.5% (and will stay that way for the foreseeable future). What will expected inflation be next year? Write your answer as a percentage, and round at one (1) decimal. Do not write the percentage sign. If you need more information to answer the question, write "O".arrow_forward
- As with demand and supply analysis, changes in the economy can cause both shifts of and movements along the short-run Phillips curve. Which of the following would cause a shift of the short-run Phillips curve? Check all that apply. An increase in government spending A decrease in short-run aggregate supply An increase in the expected inflation ratearrow_forwardAn economy has the following equation for the Phillips Curve: π = Eπ − 0.5(u − 6)People form expectations of inflation by taking a weighted average of the previous two years of inflation: Okun’s law for this economy is: Eπ = 0.7π−1 + 0.3π−2 (Y −Y−1)/(Y-1)=3.0−2.0(u−u−1) Th economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. 1. What is the natural rate of unemployment for this economy? 2. Graph the short-run tradeoff between inflation and unemployment that this economy faces. Label the point where the economy begins as A. 3. A fall in aggregate demand leads to a recession, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph, label the point the economy experiences that year as point B.arrow_forwardDraw a Phillips curve graph here that shows a natural rate of unemployment of 4% and a current inflation rate of 2%. Make sure your lines and axes are labeled and your graph is complete! Use your knowledge of The Phillips Curve to answer the following questions. The threat of future inflation: makes people reluctant to loan money for long periods. makes people eager to loan money for long periods. has no effect on loaning money. increases the value of money paid back in the future. makes people reluctant to borrow money for long periods. According to the short-run Phillips Curve, there is a trade-off between: interest rates and inflation. the growth of the money supply and interest rates. unemployment and economic growth. inflation and unemployment. economic growth and interest rates. Which of the following is true of the long-run Phillips curve? it shows there is a trade-off between unemployment and inflation. it is positively sloped when the inflation rate exceeds…arrow_forward
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