Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 35, Problem 5QR
To determine
The effect of reducing inflation on the short run and long run Philips curve .
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The Fed decides to reduce inflation. Use the Phillips curve to show the short-run and long-run effects of this policy. How might the short-run costs be reduced?
How rising commodity prices and wages might lead to cost-push inflation?
True or false? Inflation, on average, makes people neither richer nor poorer. Therefore it has no cost. Explain.
Chapter 35 Solutions
Principles of Economics (MindTap Course List)
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- Draw 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_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_forwardDraw the short-run trade-off between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?arrow_forward
- You're a pricing analyst for a manufacturing firm. You are tasked with predicting how average prices will change over the next quarter to help your manager decide how to change her prices. How might you find the best estimate of the likely inflation rate? For the best estimate, obtain the average forecast of many economists. look to the financial markets. analyze surveys of people's inflation expectations. rely on the forecast of an eminent economist.arrow_forwardWe have talked about inflation. Consider the following question and evaluate: Do rising oil prices cause inflation?arrow_forwardExplain the pros and cons of inflation.arrow_forward
- When you graph the Phillips curve, what goes on the y-axis? Change in inflation Rate of inflation Change in consumer price Change in short-run outputarrow_forwardA central bank pledges to reduce the inflation rate from 10% to 3%. People reduce their inflation expectations to 5%, but the central bank reduces inflation to 3%. What happens to the unemployment rate?arrow_forwardMAKE YOUR OWN QUESTION Consider an economy on its long-run path. The inflation is 10%. Suppose the slope of the Phillips curve is v= . In order to bring the inflation rate down from 10% to %, GDP should fall below its potential value by %. Choose your own values to answer this question. Justify carefully your answer.arrow_forward
- What can be used to reduce aggregate demand and thereby control demand pull inflation? One wordarrow_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_forwardIs inflation necessarily always a bad thing?arrow_forward
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