4. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium, Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated.

4. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium, Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 5CQQ

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Assume that the unemployment rate rises. What is the impact on the short run Phillips curve? O It will shift up. O There will be movement along the curve to the left. O There will be movement along the curve to the right. OIt will shift down. Show Transcribed Text The following equations describes an economy: Y=C+I+G+ NX C = 250 +0.7*(1-t)Y t = 0.2 1 = 300 G = 60 NX = 40 Which of the following statements is true? O If exports increase by 10, equilibrium Y will increase by 33. O Without any changes, the equilibrium level of Y is 2167. O If government spending increases by 40, equilibrium Y will increase by 46.51. The value of the government spending multiplier is 2.27. Show Transcribed Text
Assume that an economy is initially at the natural rate of unemployment.a. Use a Phillips curve diagram to illustrate graphically how the inflation rate andunemployment rate change both in the short run and in the long run to anunexpected expansionary monetary policy.b. Use a Phillips curve diagram to illustrate graphically how the inflation rate andunemployment rate change both in the short run and in the long run to theannouncement of a credible plan of expansionary monetary policy whenpeople have rational expectations.
4. 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. On the following graph, shift the short-run (SR) Phillips curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 8 5 3 N 1 0 0 3 9 SR Phillips Curve 8 12 UNEMPLOYMENT RATE (Percent) 15 18 In the short run, an unexpected decrease in the money supply results in unemployment rate. SR Phillips Curve in the inflation rate and in the
What is the effect of an increase in aggregate demand on the short-run Phillips curve? When aggregate demand increases, _______. A. the short-run Phillips curve shifts upward B. the short-run Phillips curve shifts downward C. a movement occurs upward along the short-run Phillips curve D. a movement occurs downward along the short-run Phillips curve
Now, suppose the economy is back in long-run equilibrium, and then the price of imported oil rises. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the increase in the price of oil. nflation Rate L SRPC LRPC O True O False Unemployment Rate SRPC O Short-Run Effect LRPC True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate but the unemployment rate will be higher. (?)
Suppose the inflation rate has been 15 percent for the past four years. The unemployment rate is currently at the natural rate of unemployment of 5 percent. 30 The Bank of Canada decides that it wants to permanently reduce the infation rate to 5 percent. To de this, the Bank of Canada would use torg-tun Philips curve 25 poley. the natural 20 As a result of this policy, the unemployment rate will be rate of 6 percent and the inflation rate will be edging slowly 15 Use the line drawing tool to draw the line that ilustrates what will happern the Bank of Canadn maintains this policy long enough that workers and fims lower their expectations of future inflation. Property label this line. 10 Short-un Phiips curve Carefully follow the instructions above, and only draw the required objects. 5- Ir the the Bank of Canada policy is successful, the infation rate will be percent and the unemployment rate will beO percent. 10 Unempioyment rate (percent) Click the graph, choose a tool in the palette…
The accompanying graph depicts the Short-Run Phillips O Curve (SRPC) when the public expects no inflation in the economy. Macmillan Learning a. According to this SRPC, what would inflation be if unemployment is 9%? 0 Incorrect b. Please move the SRPC line to reflect what would happen if the public's inflation expectations increased so that they now expect the inflation rate to increase by 2%. c. If the unemployment rate is still 9%, what is the new inflation rate after this change in expectations? % 2 % Inflation rate (%) 7 6 5 4 3 2 1 0 -1 -2 -3 0 1 SRPC 2 3 4 5 6 Unemployment rate (%) 7 8 9 10
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According to the quantity theory of money, an increase in long-run real GDP inflation, and the Phillips curve demonstrates that inflation with rising real GDP. This is because the quantity theory is a theory of price behavior. A. reduces; increases; long-run B. raises; increases; short-run OC. has zero influence on; decreases; money-neutral D. raises; decreases; short-run E. reduces; does not move; Keynesian
A Wall Street Journal offered the following opinion of the bond market in September 2012, when inflation rate was about 2%: Ac€A?Someone buying long-term bonds yielding 1.5% or 2% and then seeing consumer price inflation of 4%, will be on the loosing end of the betAc€??. a. Explain verbally and illustrate graphically what will happen to the price of bonds if expected inflation increases to 4% from 2%. Be sure to include in your answer the demand the bond market. b. Explain why someone buying long-term bonds yielding 1.5% or 2% and then seeing consumer price inflation of 4%, will be on the loosing end of the bet. c. Suppose that you expect a greater increase in inflation than do others investors, but that you do not expect the increase to occur until 2015. Should you wait until 2015 to sell your bond? Briefly explain. d. The columnist also argued that long-term bonds would be a good investment if only Ac€A? when we get serious price deflationAc€?? Ac€?c *Explain verbally and illustrate…