Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 17, Problem 8PA
Sub part (a):
To determine
The changes in
Sub part (b):
To determine
The changes in aggregate supply and demand on aggregate supply curve, aggregate demand curve, and Phillips curve.
Sub part (c):
To determine
The changes in aggregate supply and demand on aggregate supply curve, aggregate demand curve, and Phillips curve.
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As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices.
1. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram. (Please use the images attached.)
2. Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think only about the directions of the shifts.) Check all that apply.
-Equilibrium output will rise.
-The price level will fall.
-Unemployment will rise.
-The effect on the inflation rate will be ambiguous.
The following graph plots the long-run Phillips curve (LRPC) and short-run Phillips curve (SRPC1SRPC1) for an economy currently experiencing long-run equilibrium at point A (grey star symbol).
Which of the following is true along SRPC1SRPC1?
-The actual unemployment rate is 6%.
-The expected inflation rate is 5%.
-The actual inflation rate is 5%.
-The natural rate of unemployment is 3%.
Suppose that the central bank for this economy suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated policy action, actual inflation falls to 3%.
On the previous graph, use the black point (plus symbol labeled "B") to illustrate the short-run effects of this policy.
Suppose that now, after a period of 3% inflation, households and firms begin to expect that the inflation rate will persist at the level of 3%.
On the previous graph, use the purple line (diamond symbol) to draw SRPC2SRPC2, the short-run Phillips curve that is…
The following graph plots the long-run Phillips curve (LRPC) and short-run Phillips curve (SRPC1SRPC1) for an economy currently experiencing long-run equilibrium at point A (grey star symbol).
Which of the following is true along SRPC1SRPC1?
-The actual unemployment rate is 6%.
-The expected inflation rate is 5%.
-The actual inflation rate is 5%.
-The natural rate of unemployment is 3%.
Suppose that the central bank for this economy suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated policy action, actual inflation falls to 3%.
On the previous graph, use the black point (plus symbol labeled "B") to illustrate the short-run effects of this policy.
Suppose that now, after a period of 3% inflation, households and firms begin to expect that the inflation rate will persist at the level of 3%.
On the previous graph, use the purple line (diamond symbol) to draw SRPC2SRPC2, the short-run…
Chapter 17 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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Similar questions
- Assume the economy of Country X is operating above its full-employment output level. Using a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, show the short-run equilibrium, labeling the equilibrium price level as PLe and the equilibrium output as Ye. Draw a single correctly labeled graph and show both a short-run and a long-run Phillips curve. Identify a point that could represent the short-run equilibrium in part (a) and label it as Z. Assume that the central bank of Country X wants the economy to be in full-employment equilibrium. What open-market operation should the central bank initiate? Given your answer in part (c), what will be the effect of the central bank’s open-market operation on each of the following in the short run? The nominal interest rate Employment. Explain. Assume that the real interest rate increases in Country X. Will the international value of Country X’s currency increase, decrease, or…arrow_forwardAn increase in worker productivity brought about by the introduction of new technology into the workplace willa. shift the long-run Phillips curve to the left.b. shift the long-run Phillips curve to the right.c. decrease aggregate demand, since workers will lose their jobs.d. cause the aggregate demand curve to become horizontal. Give proper explanations for the correct onearrow_forwardWhat is the effect of an increase in aggregate demand on the short-run Phillips curve? When aggregate demand increases, _______. A. the short-run Phillips curve shifts upward B. the short-run Phillips curve shifts downward C. a movement occurs upward along the short-run Phillips curve D. a movement occurs downward along the short-run Phillips curvearrow_forward
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