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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 22, Problem 3CQQ
Textbook Problem
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When an adverse supply shock shifts the short-run aggregate-supply curve to the left, it also

a. moves the economy along the short-run Phillips curve to a point with higher inflation and lower unemployment.

b. moves the economy along the short-run Phillips curve to a point with lower inflation and higher unemployment.

c. shifts the short-run Phillips curve to the right.

d. shifts the short-run Phillips curve to the left.

Expert Solution
To determine

To determine: The effect of supply shocks on shift in Phillips curve.

Explanation of Solution

Option (c):

When an adverse supply shock shifts the short-run aggregate supply curve to the left, it also shifts the short-run Phillips curve to the right. If the favorable supply curve shifts the aggregate supply curve to the right, then it will also shift the Phillips curve to the left. Thus, option “c” is correct.

Option (a):

The adverse supply curve shift the short-run aggregate supply curve to the left, it does not  move the economy along the short-run Phillips curve to a point with higher inflation and lower unemployment. Thus, option “a” is incorrect...

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