EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 31, Problem 8SPPA
To determine
To explain:
The way a past of rapid inflation rate can affect the short run and long run
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Students have asked these similar questions
As with demand and supply analysis, changes in the economy can cause both shifts of and movements along the short-run Phillips curve.
Which of the following would cause a shift of the short-run Phillips curve? Check all that apply.
An increase in government spending
A decrease in short-run aggregate supply
An increase in the expected inflation rate
Explain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.
Assume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%.
Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph.
Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same?
Short-run aggregate supply curve. Explain
Long-run Phillips curve. Explain
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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- According to the St. Louis Federal Reserve the natural unemployment rate is 4.42 percent (Q4 2023 ) and the U.S. Bureau of Labor Statistics (BLS) estimates the U.S. unemployment rate (U3, October 2023 B) to be 3.9 percent. If you expect unemployment to continue to fall the short-run Phillips curve would predict: OA decrease in the inflation rate. An increase in the inflation rate. ○ A decrease in the unemployment rate. ○ An increase in the unemployment rate.arrow_forwardYou observe the following short-run Phillips curve for the economy: T = 9.2 -0.26(u - 6.5%) + v. There are no supply shocks to the economy, and the actual unemployment rate is 6.5% (and will stay that way for the foreseeable future). What will expected inflation be next year? Write your answer as a percentage, and round at one (1) decimal. Do not write the percentage sign. If you need more information to answer the question, write "O".arrow_forwardFor 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 rise in the price of imported oil. 2. There is a fall in government spending.arrow_forward
- True or false? An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.arrow_forwardIn the decade through 2020, inflation was consistently low. If people adjusted their inflation expectations to their actual inflation experience, this would shift the short-run Phillips curve down. shift the short-run Phillips curve up. shift the long-run Phillips curve to the left. Shift the long-run Phillips curve to the right.arrow_forwardThe following graph depicts the short-run and long-run Phillips curves (SRPC and LRPC) for a hypothetical economy in long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the current inflation rate is 8% per year.arrow_forward
- An economy has the following equation for the Phillips Curve: π = Eπ − 0.5(u − 6)People form expectations of inflation by taking a weighted average of the previous two years of inflation: Okun’s law for this economy is: Eπ = 0.7π−1 + 0.3π−2 (Y −Y−1)/(Y-1)=3.0−2.0(u−u−1) Th economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. 1. What is the natural rate of unemployment for this economy? 2. Graph the short-run tradeoff between inflation and unemployment that this economy faces. Label the point where the economy begins as A. 3. A fall in aggregate demand leads to a recession, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph, label the point the economy experiences that year as point B.arrow_forwardExplain why the Phillips Curve is drawn to show a positive relationship between aggregate output and inflation, and why a move up the curve to an above equilibrium output level may be followed by an upward shift of the whole curve.arrow_forwardThe Phillips curve in Lowland takes the form of π = 0.04 − 0.6(u − 0.05), where π is the actualinflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form ofπ = 0.08 − 0.4(u − 0.05). The current unemployment rate in both countries is 9 percent (0.09). For both countries, analyze the impact on inflation of a 2% decrease in unemployment? In which country will policymakers face a bigger trade-off if they try to reduce unemployment in the shortrun? Whyarrow_forward
- Suppose that the natural unemployment rate is 7 percent and the expected inflation rate in 2017 is 3 percent a year. If the inflation rate is expected to rise to 5 percent a year in 2018, explain how the short-run and the long-run Phillips curves will change.arrow_forwardBy using AD-AS (upward sloping) and Phillips Curve analysis, explain what happens to output and price level as well as unemployment and inflation rates in both the short and long run for each of the situations listed below: a) The government decreases the corporate tax rate from 30% to 20%. b) Bank Negara Malaysia (BNM) increases the required reserve ratio.arrow_forwardSuppose that the economy of Marvelia is in the long-run equilibrium. Explain and show the condition using both the short-run and long-run Phillips curves.arrow_forward
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