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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Suppose the natural rate of unemployment is 6 percent. On one graph, draw two Phillips curves that describe the four situations listed here. Label the point that shows the position of the economy in each case.

  1. a. Actual inflation is 5 percent, and expected inflation is 3 percent.

    b. Actual inflation is 3 percent, and expected inflation is 5 percent.

    c. Actual inflation is 5 percent, and expected inflation is 5 percent.

    d. Actual inflation is 3 percent, and expected inflation is 3 percent.

To determine

Illustration of actual and expected inflation on a Phillips curve.

Explanation

Figure 1 shows the illustration of different rates of actual and expected inflation on the Phillips curve.

In Figure 1, the vertical axis measures inflation rate and the horizontal axis measure unemployment rate. The downward sloping curve shows the shift in the short-run Phillips curve. The vertical line parallel to the vertical axis is the long-run Phillips curve.

Actual inflation of 5 percent and expected inflation of 3 percent is shown in point “a” on the SRPC1...

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