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

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

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 6P

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