The graph shows current unemployment and inflation rates in the economy. Due to public pressure, policy makers at the Federal Reserve make a one-time decision to use monetary policy to lower unemployment to 3%, a level the American public will accept. In the diagram, adjust the short-run Phillips curve (SRPC) to show the long-term consequence of this choice. Then answer the questions that follow. By reducing the unemployment rate to 3%, how much does inflation increase? inflation increase = What is the value of the NAIRU in this economy? value of the NAIRU = % % Inflation rate (%) 10 9 8 7 6 5 4 3 2 1 0 0 1 2 LRPC 3 4 5 6 Unemployment rate (%) 7 8 SRPC 9 10

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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The graph shows current unemployment and inflation rates
in the economy. Due to public pressure, policy makers at the
Federal Reserve make a one-time decision to use monetary
policy to lower unemployment to 3%, a level the American
public will accept. In the diagram, adjust the short-run
Phillips curve (SRPC) to show the long-term consequence of
this choice. Then answer the questions that follow.
By reducing the unemployment rate to 3%, how much does
inflation increase?
inflation increase =
What is the value of the NAIRU in this economy?
value of the NAIRU =
%
%
Inflation rate (%)
10
9
8
7
6
5
4
3
2
1
0
0
1
2
LRPC
5 6
3 4
Unemployment rate (%)
7
8
SRPC
9
10
Transcribed Image Text:The graph shows current unemployment and inflation rates in the economy. Due to public pressure, policy makers at the Federal Reserve make a one-time decision to use monetary policy to lower unemployment to 3%, a level the American public will accept. In the diagram, adjust the short-run Phillips curve (SRPC) to show the long-term consequence of this choice. Then answer the questions that follow. By reducing the unemployment rate to 3%, how much does inflation increase? inflation increase = What is the value of the NAIRU in this economy? value of the NAIRU = % % Inflation rate (%) 10 9 8 7 6 5 4 3 2 1 0 0 1 2 LRPC 5 6 3 4 Unemployment rate (%) 7 8 SRPC 9 10
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