Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 35, Problem 2PA
Sub part (a):
To determine
Changes in short run and long run Phillips curve .
Sub part (b):
To determine
Changes in short run and long run Phillips curve.
Sub part (c):
To determine
Changes in short run and long run Phillips curve.
Sub part (d):
To determine
Changes in short run and long run Phillips curve.
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On a given short-run Phillips curve which of the following is held constant?
a.
the level of GDP
b.
employment
c.
the unemployment rate
d.
expected inflation
Assume 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…
To pursue economic growth in the middle of the pandemic, the government decided to increase the government’s spending.
Illustrate the effects of this policy by drawing the short run Phillips curves! What would happen in the long run?
Chapter 35 Solutions
Principles of Economics (MindTap Course List)
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Similar questions
- 2. Analyze the effects of the following developments on both the short-run and the long-run Phillips curves. Use the graphs and explain in detail: a) a rise in the natural rate of unemployment b) a substantial increase in the price of energyarrow_forwardFor 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_forwardCan you answer this for me?arrow_forward
- Explain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.arrow_forwardYou have been told that expected inflation is greater than actual inflation in an economy. Show this on the Phillips curve and explain how the economy reverts to long run equilibriumarrow_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_forward
- What is the effect of an increase in aggregate demand on the short-run Phillips curve? When aggregate demand increases, _______. A. the short-run Phillips curve shifts upward B. the short-run Phillips curve shifts downward C. a movement occurs upward along the short-run Phillips curve D. a movement occurs downward along the short-run Phillips curvearrow_forwardConsider 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_forwardWhich of the following is downward-sloping? a. both the long-run Phillips curve and the long-run aggregate-supply curve b. neither the long-run Phillips curve nor the long-run aggregate-supply curve c. the short-run Phillips curve, but not the long-run aggregate-supply curve d. the long-run Phillips curve, but not the long-run aggregate-supply curvearrow_forward
- 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 samearrow_forwardShow the effect of an increase in the natural rate of unemployment on both the long-run and short-run Phillips curves. Assume the graph represents the short-run and long-run Phillips curves before the increase in the natural rate of unemployment. 1.) Using the line drawing tool, show the effect of a higher natural rate of unemployment by drawing either a new short-run Phillips curve, a new long-run Phillips curve, or both. Label your curve(s) either 'SRPC₂' or 'LRPC2.' 2.) Using the point drawing tool, indicate the new long-run equilibrium. Label your point 'e Carefully follow the instructions above and only draw the required objects. Use your graph to explain how the increase in the natural rate of unemployment lessens the effect of high unemployment on the inflation rate. With the higher natural rate of unemployment, the inflation rate is at the long-run equilibrium. Did the high unemployment rates during and immediately after the recession of 2007-2009 turn out to be permanent?…arrow_forwardNote :Don't use chat botarrow_forward
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