4. Monetary policy and the Phillips curveNOTE: MAKE SURE TO ADJUST BOTH GRAPHS PROPERLY!! and make sure its clear!! NOTE: options for first set of blanks1. In the short run, an unexpected decrease in the money supply results in _____ (no change OR a decrease OR an increase) in the inflation rate and ______ (no change OR a decrease OR an increase NOTE: options for first set of blanks2. In the short run, an unexpected decrease in the money supply results in _____ (no change OR a decrease OR an increase) in the unemployment rate (relative to the economy's initial equilibrium). The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rateand 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 thispolicy.Hint: You may assume that the central bank's move was unanticipated.SR Phillips CurveSR Phillips Curve1012UNEMPLOYMENT RATE (Percent)INFLATION RATE(Percent) In the short run, an unexpected decrease in the money supply results inin the inflation rate andin theunemployment rate.On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the moneysupply.511012UNEMPLOYMENT RATE (Percent)In the long run, the decrease in the money supply results inin the inflation rate andin the unemployment rate(relative to the economy's initial equilibrium).INFLATION RATE(Percent)

According to the Phillips curve, the inflation rate and the unemployment rate are inversely related.…

Answered: The following graph shows the current…

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter17: The Philips Curve And Expetactions Theory

Section: Chapter Questions

Problem 1SQP

See similar textbooks

4. Monetary policy and the Phillips curve

NOTE: MAKE SURE TO ADJUST BOTH GRAPHS PROPERLY!! and make sure its clear!!

NOTE: options for first set of blanks

1. In the short run, an unexpected decrease in the money supply results in _____ (no change OR a decrease OR an increase) in the inflation rate and ______ (no change OR a decrease OR an increase

NOTE: options for first set of blanks

2. In the short run, an unexpected decrease in the money supply results in _____ (no change OR a decrease OR an increase) in the unemployment rate (relative to the economy's initial equilibrium).

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.
SR Phillips Curve
SR Phillips Curve
10
12
UNEMPLOYMENT RATE (Percent)
INFLATION RATE(Percent)

In the short run, an unexpected decrease in the money supply results in
in the inflation rate and
in the
unemployment rate.
On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money
supply.
5
1
10
12
UNEMPLOYMENT RATE (Percent)
In the long run, the decrease in the money supply results in
in the inflation rate and
in the unemployment rate
(relative to the economy's initial equilibrium).
INFLATION RATE(Percent)

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions