Relationship between inflation and unemployment .

Question

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Answer 1

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

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Students have asked these similar questions

“The more people at work, the higher their bills” The Phillips Curve shows the correlation between unemployment and inflation.” In the light of this statement,(a) Draw the short-run trade-off between inflation and unemployment. How might the Central Bank move the economy from one point on this curve to another? (b) Draw the long-run trade-off between inflation and unemployment. Explain how the short-run and long-run trade-offs are related. (c) Illustrate the effects of the following developments on both the short-run and long-run Phillips curves. Give the economic reasoning underlying your answers.1. A rise in the natural rate of unemployment.2. A decline in the price of imported oil.

Draw the Phillips curve.Use the model of aggregate demand and aggregate supply to show how policy can move the economy from a point on this curve with high inflation to a point with low inflation

Answer 2

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

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Answer 3

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

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Answer 4

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

Answer 6

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

Answer 7

Chapter 22, Problem 1CQQ

To determine

Relationship between inflation and unemployment.

Answer 8

Expert Solution & Answer

Answer to Problem 1CQQ

Option “b” is the correct answer.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.