Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 31, Problem 9SPPA
To determine
To illustrate:
The short-run and long-run Phillips curves if the expected inflation rate changes and the natural
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Go to the website of Statistics Canada www statcan ca For each
Go to the website of Statistics Canada (www.statcan.ca). For each of the past five years, find the inflation rate as measured by the consumer price index (all items)—sometimes called head-line inflation —and as measured by the CPI excluding food and energy—sometimes called core inflation. Compare these two measures of inflation. Why might they be different? What might the difference tell you about shifts in the aggregate supply curve and in the short-run Phillips curve?
Go to the website of Statistics Canada www statcan ca For each
What does the short-run Phillips curve predict will happen to inflation and unemployment if the Bank of Canada were to reduce the growth rate of the money supply?Select one:a. inflation would fall, but unemployment would riseb. inflation and unemployment would both risec. inflation would rise, but unemployment would falld. inflation and unemployment would both fall
1. Monetary policy and the Phillips curve
The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium.
Suppose the central bank of the hypothetical economy decides to decrease the money supply.
Chapter 31 Solutions
Foundations of Economics (8th Edition)
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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- Answer correctly and explain. I ll rate. Do it fast. The ________ suggests a negative relationship between inflation and unemployment. Responses long-run Phillips curve short-run Phillips curve aggregate demand curvearrow_forwardQuestion 6 Read parts (i) to (iii) before answering. Answer all three parts on a single diagram. Assume that the economy experiences no change in productivity, money demand or its natural rate of unemployment in either the short or long run. The inflation rate responds immediately to correspond to the money supply growth rate. However, wage inflation adjusts to changes in the inflation rate with a time lag. (i) Draw a diagram with inflation on the vertical axis and the unemployment rate on the horizontal axis that illustrates the Phillips curve relationship in the short run. Label the curve as PC1. Mark a point N on the horizontal axis that represents the natural rate of unemployment. (ii) Assume that the economy is initially on the curve PC1 at the natural rate of unemployment, with a 5 % rate of increase in the money supply and a 5% inflation rate. Mark point A on the curve PC1 which you would expect to observe if there was an unexpected increase in the rate of growth of the…arrow_forward10 6. New Classical Model with Rational Expectations. People anticipate policy incorrectly with a bias up. There is a rise in the money supply. Explain and diagrammatically represent what happens in the short-run and long-run to P, Y, W, and N. Draw the short-run and long-run Phillips curves consistent with your resultsarrow_forward
- a) What is Phillips curve? Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different. b) Suppose the economy is in a long-run equilibrium. Suppose a wave of business pessimism reduces aggregate demand. Show the effect of this shock on your diagram from part (a). If the RBI undertakes expansionary/contractionary monetary policy, can it return the economy to its original inflation rate and original unemployment rate? (b) What is sacrifice ratio?arrow_forward1. The central Bank announces that it expects inflation to be relatively low while unemployment rises in the following months. What you be an expected monetary policy action as a result of this forecast? a. increase government spending b. decrease the discount rate c. increase the reserve ration d. sell bonds on the open market e. decrease marginal income tax rates 2. The long-run Phillips Curve indicates that there is no relationship between inflation and unemployment in the long run. Therefore, which of the following would cause an increase in the natural rate of unemployment and shift the LRPC to the right? a. An increase in unemployment benefits for the long-term unemployed. b. The elimination of various social welfare programs. c. A decrease in the duration of unemployment d. An increase in core inflation rates e. Expansionary monetary policiesarrow_forward“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.arrow_forward
- Suppose that an economy has the Phillips curve π = π−1 − 0.5( u − 0.06). a. What is the natural rate of unemployment? b. Graph the short-run and long-run relationships between inflation and unemployment. c. How much cyclical unemployment is necessary to reduce inflation by 5 percentage points? Using Okun’s law, compute the sacrifice ratio. d. Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give two scenarios that will achieve that goal.arrow_forwardDiscussion. Please state your points and reasons according to the material given below. Inflation is an economic phenomenon that every country has to cope with. This year has seen drastic inflation in a number of countries all over the world. Please write down answers to the questions below based on your finance knowledge. (1) Explain the causes of inflation and the ways to control it. 2) Suppose you are the consultant of the central bankers in your own country, what suggestions will you give to control and solve the unacceptable inflationarrow_forward
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