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EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 31, Problem 4IAPA
To determine
To plot:
The short-run
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Aggregate demand, aggregate supply, and the Phillips curve
In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves AD 2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled AD(a) curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled AD(b), resulting in the outcome given by point B.
Suppose the unemployment rate is 7% under one of these two outcomes and 6% under the other. Based on the previous graph, you would expect (OUTCOME A or OUTCOME B) to be associated with the higher unemployment rate (7%).
If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between 2027 and 2028 is (1.96% or 5.00% or 4.00% or 2.94%).
Based on your answers to the previous…
Step 1
Plot the graphs.
The corresponding table includes a breakdown including Inflation Rate, Unemployment Rate,
Price Level, and Real GDP. Using the data below, plot the graphs:
Plot the short-run Phillips curve and the aggregate supply curve on separate graphs.
Plot the long-run Phillips curve on a separate graph, when the natural unemployment
rate is 6%.
Inflation Rate
Unemployment Rate
Price Level
Real GD
2%
7%
104
9.8
3%
6%
103
10.0
4%
5%
102
10.2
For each of the following scenarios, illustrate the effects of the development on both the short-run and long-run Phillips curves (SRPC and LRPC, respectively).
1. There is a fall in the natural rate of unemployment.
2. There is a decline in expected inflation.
3. There is a fall in government spending.
4. There is a rise in the price of imported oil.
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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- (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.arrow_forwardThe Phillips curve represents the relationship between unemployment and inflation. You are required to think about the impact on the economy of movements along the curve. If the unemployment rate in the economy is steady at 4 percent per year, how does the short-run Phillips curve predict that the inflation rate will be changing, if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations. Provide an appropriate graph to support your discussion.arrow_forwardConsider the Phillips curves depicted in the graph above. The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If expectations of inflation are not altered by the Fed's announcement, the rate of unemployment will be ________ in the short run. a)less than 5.5 percent b)5.5 percent c)between 5.5 and 7.5 percent d)7.5 percentarrow_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_forwardThe axes below are for showing the Phillips curve model. The Phillips curve shows the trade off between (Select one: unemployment and economic growth/inflation and interest rates/ unemployment and inflation/ real GDP and the price level/ exports and imports/ wages and productivity) The long run Phillips curve would most likely go through points (Select one: ADF/ BEG/ DG/ ABC/ CE) Suppose that both axes are numbered 0 to 10. In June 2006 the NZ economy was most likely at about point (Select one: A/B/C/D/E/F/G). Following the global financial crisis, by June 2010 the NZ economy was most likely at approximately point (Select one: A/B/C/D/E/F/G) The key idea behind the long run Phillips curve is that (Select one below) 1. there is a long term trade off between the two variables on the axes but no short run trade off 2. in the short run lower values of the x-axis variable can be achieved at the expense of higher values of the y-axis variable 3. there is no long run trade off at all…arrow_forwardThe 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. INFLATION RATE (Percent) ཝ་ཤ་ཁ་ཀ་༥ 1 SRPC LRPC 0 0 1 2 3 UNEMPLOYMENT RATE (Percent) Which of the following is true along SRPC? The natural rate of unemployment is 2%. The actual unemployment rate is 1%. The expected inflation rate is 2%. SRPC2 с Suppose that the Fed suddenly and unexpectedly increases the money supply in an effort to reduce unemployment. As a result of this unanticipated action, actual inflation rises to 5%. 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 5% inflation-households and firms begin to expect that the inflation rate will continue to be 5%. On the previous graph, use the purple line (diamond symbol) to draw SRPC₂, the…arrow_forward
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