Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 9, Problem 3E
To determine
The impact of stimulating the economy in order to keep the output above potential level.
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(long-run Phillips Curve) Suppose the economy is at point D on the long-run Phillips curve shown in the accompanying exhibit. If that inflation rate is unacceptably high, how can policy makers get the inflation rate down? Would rational expectations help or hinder their efforts?
True, False, or uncertain: If people assume that inflation will be the same as last year's inflation, the Phillips curve relation will be a relation between the change in the inflation rate and the unemployment rate.
Prior to the mid-1970s, many economists thought a higher rate of unemployment would reduce the inflation rate. Why? How does the modern view of the Phillips curve differ from the earlier view?
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- If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not?arrow_forwardAs 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 ratearrow_forwardDraw a short run Phillips curve and show the slope of the curve and then explain what it implies for the policy makers? Can policymakers exploit the Phillips curve relationship by trading more inflation for less unemployment in the short-run? In the long run? Explain both the Monetarist (Classical) and Keynesian points of view.arrow_forward
- Explain 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_forwardAssuming the long-run Phillips curve is vertical, a consistent increase in money supply over a period of years will _________________ the unemployment rate and will _________________ the inflation rate? a) decrease; increase b) increase; decrease c) increase; have no effect on d) decrease; decrease e) have no effect on; increasearrow_forward
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