Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 35, Problem 3PA
Subpart (a):
To determine
TheEffect of change in consumer spending on aggregate supply , aggregate demand and Phillips curve .
Subpart (b):
To determine
TheEffect of change in consumer spending on aggregate supply, aggregate demand and Phillips curve.
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Students have asked these similar questions
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 curve
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
Ⓡ
A. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?"
B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages?
C. Provide an example of the book's short-run model being based on "microfoundations."
Chapter 35 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- The accompanying graph depicts the Short-Run Phillips O Curve (SRPC) when the public expects no inflation in the economy. Macmillan Learning a. According to this SRPC, what would inflation be if unemployment is 9%? 0 Incorrect b. Please move the SRPC line to reflect what would happen if the public's inflation expectations increased so that they now expect the inflation rate to increase by 2%. c. If the unemployment rate is still 9%, what is the new inflation rate after this change in expectations? % 2 % Inflation rate (%) 7 6 5 4 3 2 1 0 -1 -2 -3 0 1 SRPC 2 3 4 5 6 Unemployment rate (%) 7 8 9 10arrow_forwardDraw a correctly labeled graph showing a short-run Phillips curve with an expected inflation rate of 0% and the corresponding long-run Phillips curve a. b. On your graph, label the nonaccelerating inflation rate of unemployment On your graph, show what happens in the long run if the government decides to decrease the unemployment rate below the nonaccelerating inflation rate of unemployment. Explain. С.arrow_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_forward
- Draw the Phillips curve.Use the model of aggregate demand and aggregate supply to show how policy can move the economy from a point on this curve with high inflation to a point with low inflationarrow_forwardThe 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_forwardThe Phillips curve shows that, in the short-run: A. expected changes in aggregate demand produce a positive relationship between inflation and unemployment. B. unexpected changes in aggregate demand produce a positive relationship between inflation and unemployment. C. expected changes in aggregate demand produce an inverse relationship between inflation and unemployment. D. unexpected changes in aggregate demand produce an inverse relationship between inflation and unemployment.arrow_forward
- I'd like help on first 3 subsectionsarrow_forwardPlease answer fastarrow_forwardA politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is a. consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation. b. inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation. c. inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation. d. consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation.arrow_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_forwardAccording to the figure below, 8. Rightward AS shifts cause leftward Phillips curve shifts PC, PC, 6. 2. 1. 2 3 4. 8. Unemployment Rate (percent) What inflation rate would occur if the unemployment rate were 7 percent, with Instructions: Round your responses to the nearest O5 percent (eg. 1.0, 15, 2 0) a. PC? b- PC2? Inflation Rate (percent) 3.arrow_forward(a) What events of the 1970s and 1980s made economists believe that the shortrun relationship between inflation and unemployment was unstable (not fixed and permanent)? (b) Explain, using a diagram(s) and the concept of stagflation, the relationship between shifts in the SRAS curve and the position of the short-run Phillips curve.arrow_forward
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