EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 31, Problem 3SPPA
To determine
To compare:
The short-run
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The Economy in 2008In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
Refer to The Economy in 2008. The short-run effects of rising world commodity prices are shown by
a.
moving to the right along the short-run Phillips curve.
b.
shifting the short-run Phillips curve right.
c.
moving to the left along the short-run Phillips curve.
d.
shifting the short-run Phillips curve left.
(i)
Examine the extent to which policymakers face a trade-off between
unemployment and inflation,
(ii)
The Phillips curve suggests there is a trade-off between inflation and
unemployment, at least in the short term. Other economists argue the trade-
off between inflation and unemployment is weak. Analyse this trade-off
when Bank Indonesia (Central Bank of China) decreases reserve
requirement ratio.
(iii)
Draw the model of aggregate demand and aggregate supply diagram with
the Phillips curve.
The Economy in 2008: In the first half of June 2008, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy.
Refer to The Economy in 2008. The short-run effects of the housing and financial crisis are shown by
a. moving to the right along the short-run Phillips curve
b. moving to the left along the short-run Phillips curve
c. shifting the short-run Phillips curve right
d. shifting the short-run Phillips curve left
Chapter 31 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 31 - Prob. 1SPPACh. 31 - Prob. 2SPPACh. 31 - Prob. 3SPPACh. 31 - Prob. 4SPPACh. 31 - Prob. 5SPPACh. 31 - Prob. 6SPPACh. 31 - Prob. 7SPPACh. 31 - Prob. 8SPPACh. 31 - Prob. 9SPPACh. 31 - Prob. 10SPPA
Ch. 31 - Prob. 11SPPACh. 31 - Prob. 1IAPACh. 31 - Prob. 2IAPACh. 31 - Prob. 3IAPACh. 31 - Prob. 4IAPACh. 31 - Prob. 5IAPACh. 31 - Prob. 6IAPACh. 31 - Prob. 7IAPACh. 31 - Prob. 8IAPACh. 31 - Prob. 9IAPACh. 31 - Prob. 10IAPACh. 31 - Prob. 1MCQCh. 31 - Prob. 2MCQCh. 31 - Prob. 3MCQCh. 31 - Prob. 4MCQCh. 31 - Prob. 5MCQCh. 31 - Prob. 6MCQ
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- What 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_forwardINFLATION RATE (Percent) 1 2 5. Expectations and the Phillips curve The following graph shows an economy in long-run equilibrium at point A (grey star symbol). The vertical line is the long-run Phillips curve (LRPC). The downward-sloping curve labeled SRPC is the short-run Phillips curve passing through point A. SRPC LRPC 0 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent) Which of the following is true along SRPC? O The expected inflation rate is 5%. The natural rate of unemployment is 3%. The actual unemployment rate is 6%. • } - * SRPC2 ㄢ C (?) Suppose that the Fed suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated action, actual inflation falls to 3%. On the previous graph, use the black point (plus symbol) to illustrate the short-run effects of this policy. Now, suppose that-after a period of 3% inflation-households and firms begin to expect that the inflation rate will continue to be 3%. On the previous graph, use…arrow_forward(a) What events of the 1970s and 1980s made economists believe that the shortrun relationship between inflation and unemployment was unstable (not fixed and permanent)? (b) Explain, using a diagram(s) and the concept of stagflation, the relationship between shifts in the SRAS curve and the position of the short-run Phillips curve.arrow_forward
- The table below shows unemployment and inflation data in Country Y after a shift in aggregate demand. Period 2021 2022 Unemployment Rate 2% 5% Inflation Rate 8% 4% A. Draw a correctly labeled graph of the short run Phillips Curve for Country Y. Show the actual unemployment and inflation rate for both years. Label the Phillips Curve as SRPC. B. Now, the short run aggregate supply curve has shifted left. i. Identify one cause that would shift short run aggregate supply to the left. ii. On your graph in Part A, show how this shift would impact the short run Phillips Curve.arrow_forwardWhich of the following is correct if there is a favorable supply shock? a. the short-run aggregate supply curve and the short-run Phillips curve both shift right. b. the short-run aggregate supply curve and the short-run Phillips curve both shift left. c. the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right. d. the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.arrow_forwardThe Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. Refer to The Economy in 2008. The short-run effects of the housing and financial crisis are shown by A) moving to the right along the short-run Phillips curve. moving to the left along the short-run Phillips curve. C) shifting the short-run Phillips curve right. shifting the short-run Phillips curve left.arrow_forward
- The Phillips curve is A. a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed. B. a positive relationship in the long run between the rate of inflation and the rate of unemployment. C. a negative relationship between the inflation rate and the unemployment rate, at least in the short run. D. a positive relationship between the unemployment rate and the real Gross Domestic Product (GDP) level.arrow_forward1. Fiscal and Monetary policy actions in the short run. Take an example 2. Changes in the AD-AS model and the Phillips curve. Take an example 3. Velocity of money rather than quantity driving prices. Take an example.arrow_forwardAssume that a country's economy is in equilibrium. a) () Using a correctly labeled AD/AS graph, show how an increase in the price of gasoline, an important input of production, will affect the following in the short run. (i) Real output :- (ii) Price level-Using a correctly labeled graph, show the same effect on the Phillips curve. () Central bank of the country responds to the higher price of oil by increasing the money supply. (i ) ()Explain the process by which the increase in the money supply will affect the aggregate demand in the short run. (ii) (Indicate on the AD/AS graph, how the increase in the money supply will affect real output and the price level. d) () Now assume that instead of using monetary policy in response to the gasoline price increase, the government reduces business taxes, which results in lower production costs. Using a new correctly labeled graph, show the effect of the reduction in business taxes on the following. (i) () Real output - (ii) () Price levele) (…arrow_forward
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