Suppose that the central bank in this economy is concerned that inflation is too high and wants to lower the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of % True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve. True False
Suppose that the central bank in this economy is concerned that inflation is too high and wants to lower the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of % True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve. True False
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter35: The Short-Run Trade-off Between Inflation And Unemployment
Section: Chapter Questions
Problem 2PA
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Transcribed Image Text:Suppose that the central bank in this economy is concerned that inflation is too high and wants to lower the inflation rate by 6 percentage points per
year. A reduction in the rate of inflation is known as
To reduce inflation from 8% to 2% in the short run, the central bank would
have to accept an unemployment rate of
%
True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run
Phillips curve.
True
False
Transcribed Image Text:7. The costs of disinflation
The following graph depicts the short-run and long-run Phillips curves (SRPC and LRPC) for a hypothetical economy in long-run macroeconomic
equilibrium at point A, where the natural unemployment rate is 6% and the current inflation rate is 8% per year.
INFLATION RATE (Percent)
20
18
16
14
12
10
8
4
2
0
01
LRPC
A
SRPC
2 3 4 5 6 7 8 9 10
UNEMPLOYMENT RATE (Percent)
?
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