Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 35.3, Problem 3QQ
To determine
An example of favorable supply shocks in aggregate supply curve and the effects of shocks in Phillips curve .
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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 inflation
Graphically derive short run Phillips curve with the help of aggregate demand and supply and demand.
Hi, could you help me solve this problem?
Consider an increase in global oil and gas prices from the point of the euro area (that does not produce much oil or gas itself). Think of this shock as a supply shock and use the AD-AS -model to explain how it is likely to affect output (or unemployment) and inflation. How does your result relate to the original Phillips curve? Your answer should include a graph and a short explanation in words.
Chapter 35 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Knowledge Booster
Similar questions
- What is The Short-Run and Long-Run Phillips Curves?arrow_forwardAs described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram. LRAS Aggregate Supply Aggregate Demand XE 0 LRPC SRPC Unemployment Rate Price Level Inflation Rate Quantity of Output Aggregate Demand Equilibrium output will rise. The effect on the inflation rate will be ambiguous. The price level will fall. Unemployment will rise. Aggregate Supply LRAS Long-Run Equilibrium SRPC LRPC Long-Run Equilibrium (?) Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think only about the…arrow_forwardSuppose the Phillips curve is and the Aggregate Demand curve is Tt = Tt1+3ytot Yt = at 5(πt - 0.02) where at = Ot = 0 in the steady state. (a) Calculate the steady state values of output and inflation in this economy. (b) Calculate the short- and long-run responses of the economy to the following shocks (use a table to report your answers, as well as show them graphically on the AD-AS graph, as well as plot inflation and output against time): (1) A one-time decrease in ot to -0.05. (2) A one-time increase in at to 0.05 (at returns to 0 thereafter). (3) A permanent decrease in the Fed's inflation target from 0.02 to 0.arrow_forward
- During an election term, the government increases its spending temporarily. Show the effect of this shock on the economy using the IS-MP-PC model. Explain how and why you would change the interest rate in response to this shock. Make sure to draw the IS-MP diagram and Phillips curve.arrow_forwardAssume an imaginary country called Narnia. Firms in this country heavily rely on natural gas as a raw material to produce the final output. Assume a sudden fall in the price of natural gas. This shock is an event that directly affects firms' costs of production and thus the price that they charge. Describe the effects of this shock on the aggregate supply curve and on the Phillips curve of the economy of Narnia. Use a diagrammatic analysis to provide your answer.arrow_forwardAll of the following are likely results of a positive demand shock EXCEPT Select one: higher inflation. the Phillips curve shifts to the right. a positive output gap. the IS curve shifts to the right.arrow_forward
- Under the assumption of anticipated shocks, can policymakers exploit the Phillips curve relationship in the short-run? In the long run?arrow_forwardAnswer ONLY parts E and F.arrow_forwardInflationary expectations are an important driver of the Phillips curve relationship. What are three different ways inflationary expectations might be modelled? Depict each graphically.arrow_forward
- Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?arrow_forward"As the economy moves upward along its aggregate supply curve, the economy also moves upward along its short-run Phillips curve." Is the previous statement correct or incorrect?arrow_forwardIf expected inflation decreases, does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning