Foundations Of Economics, Global Edition
8th Edition
ISBN: 9781292217888
Author: Robin Bade and 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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Inflation at lowest rate in 5 years
Inflation rate (percent per year)
In September, inflation in the United Kingdom fell to 1.1% a year, its
lowest in 5 years. Analysts expected an inflation rate of 1.3% a year.
1.7-
Source: The New York Times, October 13, 2009
With the unemployment rate at 8 percent and the natural unemployment
rate at 6 percent, sketch the short-run Phillips curve and mark on your
graph the point which shows the situation in September. Label the point
A.
1.5-
1.3-
The unemployment rate is 8 percent and the natural unemployment rate
is 6 percent.
1.1-
Draw a point that shows the unemployment rate and the inflation rate in
September. Label it A.
0.9+
4
8
10
12
Draw a point that shows the natural unemployment rate and the expected
Unemployment rate (percent of labor force)
inflation rate. Label it B.
>>> Draw only the objects specified in the question.
Draw the short-run Phillips curve that is consistent with these data. Label
it.
of
1. Assume that in an economy the phillips curve is:
At = -0,8 (U-Un) + p
Last year's inflation was 0,08, current inflation is 0,08, unemployment rate is 0,04 and the price shock is 0,01. What is the
natural rate of unemployment?
2. The price level is 143, the inflation rate is 0,08, the nominal money supply is 12785, the nominal interest rate is 0,13 percent.
Calculate the seignorage.
INFLATION 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…
Chapter 31 Solutions
Foundations Of Economics, Global 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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- which of the following is true Select one: a. When the actual rate of unemployment is low than natural rate, the inflation rate decreases b. natural rate of unemployment is that rate of unemployment required to keep the inflation rate constant c. When the actual rate of unemployment is higher than natural rate, the inflation rate increases d. the natural rate can never be the non-accelerating inflation rate of unemploymentarrow_forwardQuestion 1 2009 Quantity 2009 Price (base year) 2010 Quantity 2010 Price Food 6 2.5 8 2.5 Clothes 5 6 10 10 Entertainment 2 4 5 5 Assume that Mark gets a fixed-rate loan from a bank when the expected inflation rate is 3 percent. If the actual inflation rate turns out to be 4 percent, who benefits from the unexpected inflation: Mark, the bank, neither, or both? Explain Question 2 What is the accelerator effect Explain the difference between the accelerator and the multiplier. Given that Country X has a nominal GDP of $100,000 and its real GDP is $45,000, calculate the GDP deflator.arrow_forwardQuestion 18 Suppose the economy currently has an inflation rate of 7%. Moreover, the slope of the economy's Phillips Curve is 1/2. Over the next 3 years, short-run output is +4 percent, O percent, and -2 percent. Based on this information you know that the inflation rate at the end of the third year is percent.arrow_forward
- The inflation rate is 6 percent a year, the unemployment rate is 4 percent, and the economy is at full employment. Draw the long-run Phillips curve. Label it LRPC. Draw the short-run Phillips curve. Label it SRPC. The Fed announces that it intends to slow the money growth rate to keep the inflation rate at 3 percent a year for the foreseeable future. People believe the Fed. Draw an arrow along a curve to show the change in the inflation rate and the unemployment rate in the short run and in the long run. 1 10- 8- 6 4- 2- Inflation rate (percent per year) Garrow_forward1. Suppose that the natural unemployment rate is 7 percent in 2016 and it decreases to 6 percent in 2017 with no change in expected inflation. Explain how the short-run and long-run tradeoffs change. 2. 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. 3. The inflation rate is 2 percent a year, and the quantity of money is growing at a pace that will maintain that inflation rate. The natural unemployment rate is 7 percent, and the current unemployment rate is 9 percent. In what direction will the unemployment rate change? How will the short-run Phillips curve and the long-run Phillips curve shift?arrow_forwardThe following graph shows a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. 12 SRPC 6:31 F 4/29/202 INFLATION RATE (Percent) 11 10 9 8 3 H CHIII I SRPC а J H a Iarrow_forward
- Suppose that the government in the economy of the diagram below regards 9 percent unemployment as unacceptable. If the government insists on reducing the unemployment rate from 9 percent to 7 percent, regardless of the consequences, thena. pressure will build in the economy to continuously reduce the rate of inflation.b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment.c. the inflation rate will increase but the unemployment rate will stay at 7 percent.d. in the long run the rate of unemployment remains unchanged, but inflation will likely accelerate. Give explanations for the correct onearrow_forwardFigure 17-5 Inflation rate (percent per year) 10% 5 0 Long-run Phillips curve 5.5% 7.5 Short-run Phillips curve Unemployment rate (percent)arrow_forwardThe 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_forward
- Figure 17-2 Inflation rate (percent per year) 5.5% 3 1 0 B Long-run Phillips curve A 3.8% 5 6 Short-run Phillips curve Unemployment rate (percent)arrow_forwardThe following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 3 LRAS 4 5 LRPC 9 AD O AD LRAS 6 12 UNEMPLOYMENT RATE (Percent) 15 SRPC 18 Ⓒ SRPC - LRPCarrow_forwardThe following table shows selected data on unemployment and inflation in the United States between 1961 and 1965. Year Unemployment Rate Inflation Rate (Percent) (Percent) 1961 6.7 1.0 1962 5.5 1.0 1963 5.7 1.3 1964 5.2 1.3 1965 4.5 1.6 Which of the following statements best describes the relationship between inflation and unemployment in the United States during this time period? 1.The short-run Phillips curve shifted to the left after actual inflation was lower than expected. 2. The short-run Phillips curve remained stable. 3. The short-run Phillips curve shifted to the right after actual inflation was higher than expected. The following graph shows the short-run Phillips curve (SRPC) for the United States in 1961. Drag the dot along the curve, shift the curve, or both to illustrate what happened between 1961 and 1965.arrow_forward
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