Answered: The following graph plots a short-run…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 2CQQ

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The following graph plots 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 to the appropriate position.

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.

As anticipated, inflation (rises/falls) and the short-run Phillips curve shifts (downward/upward) , highlighting the cost of fighting inflation, which is (higher unemployment in the long run/temporary unemployment/lower unemployment) .

Which of the following examples represents a cost of inflation? Check all that apply.

-An unintended redistribution of wealth from borrowers to lenders

-A general decrease in purchasing power

-Increased variability of relative prices

-A coffee shop’s costs to reprint its menu to reflect fluctuating prices

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 to
the appropriate position.
INFLATION RATE (Percent)
12
11
10
9
8
5
4
3
2
1
0
0
1
2
4
UNEMPLOYMENT (Percent)
SRPC
3
5
6
SRPC
?

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.
INFLATION RATE (Percent)
12
11
10
9
∞
4
3
2
1
0
0
1
LRPC
2
4
UNEMPLOYMENT (Percent)
SRPC
3
5
6
SRPC
LRPC
?

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