All of the following are likely results of a positive demand shock EXCEPT Select one: higher inflation. the Phillips curve shifts to the right. a positive output gap. the IS curve shifts to the right.
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All of the following are likely results of a positive demand shock EXCEPT
Select one:
higher inflation.
the Phillips curve shifts to the right.
a positive output gap.
the IS curve shifts to the right.
Step by step
Solved in 2 steps
- The Phillips curve shifts in response to changes in in a shock. production costs; supply the real interest rates; financial aggregate expenditure; spending production costs; spending such as the minimum wage changing, which resultsPhillips Curve graph, aggregate model(side-by- side)- show the relationship between the Phillips model and the aggregate model if stagflation hits the economy(a supply shock) Draw a graphThe Phillips curve represents the relationship between unemployment and inflation. You are required to think about the impact on the economy of movements along the curve. If the unemployment rate in the economy is steady at 4 percent per year, how does the short-run Phillips curve predict that the inflation rate will be changing, if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations. Provide an appropriate graph to support your discussion.
- 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.If inflationary expectations increase, the Phillips curve will A) become flat B) become vertical C) shift to the left D) shift to the rightIf inflationary expectations increase, the Phillips curve will A) become upward sloping B) shift to the right C) become vertical D) shift to the left
- For 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.Assume an imaginary country called Narnia. Firms in this country heavily rely on natural gas as a raw material to produce the final output. Assume a sudden fall in the price of natural gas. This shock is an event that directly affects firms' costs of production and thus the price that they charge. Describe the effects of this shock on the aggregate supply curve and on the Phillips curve of the economy of Narnia. Use a diagrammatic analysis to provide your answer.Consider the Phillips curve in the graph below. Start from long run equilibrium at point . Assume the policy maker wants to reduce inflation to T2 and that the public adopts rational expectations. After the policy change the economy will move to point Assuming no further policy intervention, in the following period the economy will be at point PC
- 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 rateIn 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.Consider the extended AD-AS model with the augmented Phillips curve. Full-employment output is y = 300 and the aggregate demand takes the form AD = 20+ 2(M/P). The short-run supply is y=ỹ+2(P- pe) and M = 500. Starting from the long-run equilibrium, the quantity of money is increased to M = 800. The increase is unanticipated. This means that the expected price pe is the price in the long-run equilibrium before the increase in M. What will be the equilibrium price and output in the first period in which the increase in M arises? (Hint: the root finding formula for quadratic equation ax2+ bx + c= o is -b+ /b2 – 4ac 2a O A. P=5.63, Y=304.12 O B. P=2.60, Y=340.42 O C. P=10, Y=350 O D. P=1.45, Y=503.34
