EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Chapter 17, Problem 2CTQ
To determine
Fed studies emphasizes the short-run
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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.
INFLATION RATE (Percent)
12
INFLATION RATE (Percent)
11
10
1
0
12
1
10
2
As anticipated, inflation
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.
SRPC
UNEMPLOYMENT (Percent)
2
LRPC
SRPC
5
UNEMPLOYMENT (Percent)
5
SRPC
and the short-run Phillips curve shifts
SRPC
LRPC
Which of the following examples represents a cost of inflation? Check all that apply.
A general decrease in purchasing power
Increased variability of relative prices
A coffee shop's costs to reprint its menu to reflect fluctuating prices
An unintended redistribution of wealth from borrowers to lenders
, highlighting the cost of fighting inflation,…
Draw the Fed model (i.e. the IS-MP, and the Phillips curves). Suppose that the Federal Reserve lowers the interest rate. Discuss the implications for output and unemployment.
What is Phillips curve? Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different.
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Similar questions
- Homework (Ch 23) 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 to the appropriate position. ? 12 11 10 9 1 INFLATION RATE (Percent) 8 I SRPC H SRPC Q Clarrow_forwardThe 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 pricesarrow_forwardDraw the short-run trade-off between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?arrow_forward
- If 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_forwardThe long-run effects of monetary policy The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). LRAS H AD 3 6 9 12 OUTPUT (Trillions of dollars) PRICE LEVEL 0 15 18 AD 441 LRASarrow_forwardIf the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run? a. An increase in inflation b. An increase in real GDP c. An increase in unemploymentarrow_forward
- The Fed decides to reduce inflation. Use the Phillips curve to show the short-run and long-run effects of this policy. How might the short-run costs be reduced?arrow_forwardExplain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.arrow_forwardWhy are inflation expectations so important to modern monetary policy? What are several ways that central banks try to manage inflation expectations?arrow_forward
- True or false? An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.arrow_forwardOver the long run the Volcker disinflation Question 61 options: shifted the short-run and long-run Phillips curves left. shifted the short-run, but not the long-run Phillips curve left. shifted the long-run, but not the short-run Phillips curves left. None of the above is correct.arrow_forwardIf wages and prices adjust slowly, we would expect expansionary monetary policy to be less likely to reduce the natural unemployment rate. more likely to reduce inflation. more likely to affect the unemployment rate. more likely to result in a vertical short-run Phillips curve.arrow_forward
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