Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 35, Problem 1PA
To determine
Illustration of actual and expected inflation on a Phillips curve .
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Suppose the natural rate of unemployment is 6%. On one graph, draw two Phillips curves that can be used to describe the four situations listed below. Label the point that shows the position of the economy in each case:
a. Actual inflation is 5% and expected inflation is 3%. (1%)
b. Actual inflation is 3% and expected inflation is 5%. (1%)
c. Actual inflation is 5% and expected inflation is 5%. (1%)
d. Actual inflation is 3% and expected inflation is 3%. (1%)
Suppose 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 one
Inflation and unemployment data for Acadia can be found in the table below.
Year
2018
2019
2020
ion Rate (%)
5
Inflation Rate (%)
+
4.7
2.6
3.5
a. Draw a graph showing the Phillips curve for Acadia based on the values for inflation and unemployment in this economy from 2018
to 2020. Plot 3 points in total to draw the Phillips curve for Acadia below. Plot the plotting points in the order 2018, 2020 and then
2019.
Unemployment Rate (%)
Phillips Curve
for Acadia
5.7
8.9
6.8
Tools
Phillips Curve
Ⓡ
Chapter 35 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- 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 percentarrow_forwardAssume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. a. Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph. b. Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? i. Short-run aggregate supply curve. Explain. ii. Long-run Phillips curve c. Identify a fiscal policy action that could be used to reduce the unemployment rate in the short run. d. Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c). e. Based on the change in real GDP…arrow_forwardWhen does the Phillips curve look like this? TU + UN U The diagram has unemployment on the horizontal axis and inflation on the vertical axis. There is a place marked on the horizontal axis marked as UN. There is a line starting at the origin that goes out and up from the origin at a 45 degree angle and continues indefinitely. There is nothing else on the diagram. When people are not changing their expectation of inflation. It never looks like this. When people have rational expectations. O When people have adaptive expectations.arrow_forward
- 3. A nation consists of 2 political parties, Democrats and Republicans. The Democrats care more about unemployment than Republicans, and Repuhlicans care more about inflation than Democrats. When Democrats hold power, they choose an inflation rate, tp and when the Republicans hold power, they choose an inflation rate, TR. Phillips's curve is: T; = n - 1.5 (u - Un). We assume that: Tp > TR.Natural unemployment rate: Un = 5%. An election is about to be held. Assume that expectations about inflation for the coming year are formed before the election. (Essentially, this assumption means that wages for the coming year are set before the election.) Moreover, it is assumed that the Democrats and Republicans have equal chance of winning the election. 1) Solve for expected inflation, in terms of tpand TR. 2) Suppose the Democrats win the election and implement their target inflation rate, Tp. If T, = 3.2% and TR = 1.5%. Solve for the unemployment rate ult. 3) Suppose the Republicans win the…arrow_forwardThe inflation rate is 6 percent a year, the unemployment rate is 4 percent, and the economy is at full employment. Draw the long-run Phillips curve. Label it LRPC. Draw the short-run Phillips curve. Label it SRPC. The Fed announces that it intends to slow the money growth rate to keep the inflation rate at 3 percent a year for the foreseeable future. People believe the Fed. Draw an arrow along a curve to show the change in the inflation rate and the unemployment rate in the short run and in the long run. 1 10- 8- 6 4- 2- Inflation rate (percent per year) Garrow_forward4arrow_forward
- Suppose the long-run Phillips curve shifts to the right. For any given rate of money growth and inflation, how would unemployment and output change? a. Unemployment would be higher, and output would be lower. b. Unemployment would be higher, and output would be higher. c. Unemployment would be lower, and output would be lower. d. Unemployment would be lower, and output would be higher.arrow_forwardUsing 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 samearrow_forwardUse the graphs below of two Phillips Curves to answer this question: Graph #1 Inflation Rate (%) 8 7 6 50 3 2 1 0 0 2 Graph #2 Inflation Rate (%) 9 8 7 10 + 3. ° • 4 Unemployment Rate (%) 6 2 1 0 T T 0 2 4 6 8 10 12 Unemployment Rate (%) A. What does the Phillips Curve Represent B. Explain why graph #2 is different from graph #1. Include the causes and solution in your answer.arrow_forward
- Inflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. 0.9+ 4 8 10 12 Draw a point that shows the natural unemployment rate and the expected Unemployment rate (percent of labor force) inflation rate. Label it B. >>> Draw only the objects specified in the question. Draw the short-run Phillips curve that is consistent with these data. Label it. ofarrow_forwardInflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. Draw a point that shows the natural unemployment rate and the expected inflation 0.9 rate. Label it B. 10 12 Unemployment rate (percent of labor force) Draw the short-run Phillips curve that is consistent with these data. Label it. >>> Draw only the objects specified in the question. Selected: Delete Clear none Nextarrow_forwardImage uploaded answer is not allowed pleasearrow_forward
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