The following graph shows a short-run Phillips curve for a hypothetical economy.Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve tothe appropriate position.(?121110SRPC9873SRPC2112346.UNEMPLΟΥΜΕNT (Percent)INFLATION RATE (Percent)LO Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve(LRPC), or both.(?12LRPC1110SRPCLRPC743SRPC21124UNEMPLOYMENT (Percent)INFLATION RATE (Percent)

The Phillips curve was given by A.W Phillips. It depicts the trade-off between the Unemployment and…

Answered: The following graph shows a short-run…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 4PA

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24. Which of the following groups benefit from an unanticipated rise in the inflation rate ? O. homeowners with foxed - rate mortgages O. elderly people living on fixed incomes O. creditors or lenders O. workers on contracts without escalator claines 25. Suppose oil prices continue to rise , causing a supply shock . If the Fed increases interest rates , what would be the long run outcome ? O. The economy returns to long run equilibrium at a lower output but higher price level O. The economy returns to long run equilibrium at the original price level and output O. The economy returns to full employment but at a higher price level O. The economy returns to the original price level but at a lower output
Assume that next year’s wage rate will be 3 percent higher than this year’s because of inflationary expectations. The actual inflation rate is 4 percent. At the beginning of next year, will the real wage be higher, lower, or the same as today? Explain. Assume that Mark gets a fixed-rate loan from a bank when the expected inflation rate is 3 percent. If the actual inflation rate turns out to be 4 percent, who benefits from the unexpected inflation: Mark, the bank, neither, or both? Explain. How does each of the following changes affect the real gross domestic product and price level of an open economy in the short run? Explain. The depreciation of the country’s currency in the foreign exchange market.
Suppose the money demand function is = 1000 + 0.2Y - 1000 (r + πe). Required (a.) Calculate velocity if Y = 2000, r = 0.06, and πe = 0.04. (b.) If the money supply (Ms) is 2600, what is the price level? (c.) Now suppose the real interest rate rises to 0.11, but Y and Ms are unchanged. What happens to velocity and the price level? (d.) For part (c.), if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year, with Y remaining at 2000, what would the inflation rate be?
5. Consider the Phillips curve πt = πt-1 – 0.5(ut – 0.01). a) What is the natural rate of unemployment? Graph the short-run and long-run relationships between inflation and unemployment? b) How much unemployment is necessary to reduce inflation by 3%? Compute the sacrifice ratio. Show your work. c) Do flexible exchange rates permit a country to pick its own unemployment-inflation trade-off target?
1. If the present inflation rate is 5% and the existing nominal interest rate is 10%, holding other things constant, what do you expect to happen (according to the Fisher effect) to the nominal interest rate if inflation falls to 2%? 2. If the quantity of money increases by 10%, while money velocity and production stay constant, what has to happen to the price level according to the quantity equation?
4) Suppose the economy is in a long-run equilibrium a)Draw the economy’s short-run and long-run Phillips curves b) Suppose a wave of business pessimism reduces aggregate demand .Show the effect of this shock on your diagram from part a .If the Fed undertakes expansionary monetary policy,can it return the economy to its original inflation rate and original unemployment rate? c)c) Now suppose the economy is back in long-run equilibrium and then the price of imported oil rises.Show the effect of this shock with a new diagram like that in part a .If the Fed undertakes contractionary monetary policy, can it return the economy to its original inflation rate and unemployment rate? Explain why this situation differs from that in part b.
Suppose the economywide demand for money is given by: M = P(0.3Y − 25,000i). The price level P equals 3, and real output Y equals 8,000. a. At what value should the Fed set the nominal money supply if it wants to set the nominal interest rate at 2 percent? The nominal money supply should be set at $ . b. At what value should the Fed set the nominal money supply if it wants to set the nominal interest rate at 3 percent? The nominal money supply should be set at $ .
16. Keynes (1936) argued that, from a policy perspective, everything that can be achieved by a nominal wage cut can be more effectively achieved through an appropriate monetary policy. (a) Does this statement hold in the deﬁcient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity? (b) Does this statement hold in the new Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?
Consider an economic shock that results in a decrease in aggregate demand for the economy, creating an output gap where GDP is lower than potential.In the short run, what is the expected changes to firm production levels, the price level in the economy, and the unemployment rate?2. In the medium run, what happens to capacity utilization? How do changes to capacity and unemployment cause pressure for lower inflation? What is the expected response from the Federal Reserve? 3. In the long run, what is the expected outcome for GDP, unemployment, and inflation if monetary policy is successful?
The importance of using rather than saving your ammunition in the presence of the zero lower bound. Suppose inflation is described by the accelerations Phillips curve, and that output is determined by a simple IS curveInitially, the central bank is setting the nominal interest rate at a strictly positive level: i(0) > 0. Assume(a) Suppose the central bank keeps i constant at i (0). Sketch the behavior of inflation and output over time.(b) Suppose the central bank keeps i constant at i (0) until some time when bπ(t) < 0, and then permanently reduces i to zero. Sketch the behavior of inflation and output over time.(c) Suppose the central bank permanently reduces i to zero at t = 0. Sketch the behavior of inflation and output over time.(d) Explain your results intuitively.
MA4. 13. If the equation for a country's Phillips curve is π = 0.05 – 0.8(u – 0.05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 3 percent (0.03)? A) .066 B) -.056 C) -.066 D) .056 11. The aggregate supply equation is Y = Y + α(P – EP). Assume that Y is 2,000, α = 200, P = 1.12 and EP = 1.00. What is the value of Y? A) 2,232 B) 2,024 C) 2,400 D) 2,012 9. If policymakers announce in advance how policy will respond to various situations but then renege on their announcements, this a problem of: A) policy by rule. B) policy by discretion. C) time inconsistency of policy. D) monetary policy. 10. According to the sticky-price model, output will be above the natural level if: A) firms expect a high price level and the demand for goods is high. B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices. C) the price level is above the…
12. Most business economists and analysts prefer to use measures of "core" inflation, which typically remove which of the following volatile components? O. Energy O. Food O. Housing O. Energy and Food

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