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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

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?

To determine

The effect of reducing inflation on the short run and long run Philips curve.

Explanation

The effect of reducing inflation on the short run as well as the long run Philips curve is explained with the help of a figure as shown below.

Figure 1 shows the changes in the short run Phillips curve.

Figure 1

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

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