Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN: 9781285165912
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem
To determine
Relationship between inflation and
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In theory, inflation not only ______ the value of consumers' money over time, but it also increases the ____ of producers over time.
a.Decreases, wages
b.Increases, interest rates
c.Decreases, unemployment
d.Increases, real GDP
The Phillips curve is
A.
a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed.
B.
a positive relationship in the long run between the rate of inflation and the rate of unemployment.
C.
a negative relationship between the inflation rate and the unemployment rate, at least in the short run.
D.
a positive relationship between the unemployment rate and the real Gross Domestic Product (GDP) level.
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
Chapter 22 Solutions
Principles of Macroeconomics (MindTap Course List)
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- The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate-demand (AD) and long-run aggregate-supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 0 3 1 LRAS 6 12 9 OUTPUT (Trillions of dollars) LRPC 4 UNEMPLOYMENT (Percent) 2 3 15 5 AD SRPC 18 6 AD LRAS SRPC LRPCarrow_forwardThe inflation rate is 6 percent a year, the unemployment rate is 4 percent, and the economy is at full employment. Draw the long-run Phillips curve. Label it LRPC. Draw the short-run Phillips curve. Label it SRPC. The Fed announces that it intends to slow the money growth rate to keep the inflation rate at 3 percent a year for the foreseeable future. People believe the Fed. Draw an arrow along a curve to show the change in the inflation rate and the unemployment rate in the short run and in the long run. 1 10- 8- 6 4- 2- Inflation rate (percent per year) Garrow_forwardIf the actual unemployment rate falls below the natural unemployment rate, how does the actual inflation rate change? The actual inflation rate ________. A. doesn't change, but the short-run Phillips curve shifts leftward B. rises up along the short-run Phillips curve C. doesn't change, but the expected inflation rate rises D. rises and the natural unemployment rate fallsarrow_forward
- Suppose that the government in the economy of the diagram below regards 9 percent unemployment as unacceptable. If the government insists on reducing the unemployment rate from 9 percent to 7 percent, regardless of the consequences, thena. pressure will build in the economy to continuously reduce the rate of inflation.b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment.c. the inflation rate will increase but the unemployment rate will stay at 7 percent.d. in the long run the rate of unemployment remains unchanged, but inflation will likely accelerate. Give explanations for the correct onearrow_forwardThe following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 3 LRAS 4 5 LRPC 9 AD O AD LRAS 6 12 UNEMPLOYMENT RATE (Percent) 15 SRPC 18 Ⓒ SRPC - LRPCarrow_forwardWhat relationship does the short-run Phillips curve show? The short-run Phillips curve shows a _______ relationship between the unemployment rate and the _______. A. positive; interest rate B. negative; interest rate C. negative; inflation rate D. positive; inflation rate Thanksarrow_forward
- What is true along the long-run Phillips curve? A. A labor shortage exists. B. A tradeoff exists between the inflation rate and the unemployment rate. C. The economy is at full employment. D. The inflation rate equals the expected inflation rate and any unemployment rate is possible.arrow_forwardInflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. 0.9+ 4 8 10 12 Draw a point that shows the natural unemployment rate and the expected Unemployment rate (percent of labor force) inflation rate. Label it B. >>> Draw only the objects specified in the question. Draw the short-run Phillips curve that is consistent with these data. Label it. ofarrow_forwardInflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. Draw a point that shows the natural unemployment rate and the expected inflation 0.9 rate. Label it B. 10 12 Unemployment rate (percent of labor force) Draw the short-run Phillips curve that is consistent with these data. Label it. >>> Draw only the objects specified in the question. Selected: Delete Clear none Nextarrow_forward
- The Economy in 2008In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. Refer to The Economy in 2008. The short-run effects of rising world commodity prices are shown by a. moving to the right along the short-run Phillips curve. b. shifting the short-run Phillips curve right. c. moving to the left along the short-run Phillips curve. d. shifting the short-run Phillips curve left.arrow_forwardThe natural unemployment rate and the expected inflation rate are constant when moving along the _______, which shows a trade off between ________ and ________. A. aggregate demand curve; inflation; employment B. aggregate supply curve; inflation; unemployment C. short−run Phillips curve; inflation; unemployment D. short−run Phillips curve; inflation; employment E. long−run Phillips curve; inflation; unemploymentarrow_forwardTo say that the natural rate of unemployment changes over time is to say that a. the long-run Phillips curve shifts over time. b. the Federal Reserve influences the natural rate of unemployment over time. c. the aggregate demand curve shifts over time. d. the short-run Phillips curve shifts over time.arrow_forward
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