ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Consider the short-run Phillips curve . If the actual unemployment rate falls below the full employment rate of unemployment, it should be expected that:
- the Phillips curve would shift downwards
- wages would fall
- the natural rate of unemployment would fall
- the inflation rate would increase
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- Assume that the economy self corrects to long-run equilibrium without a governmental policy. Which of the following is the correct adjustment on the Phillips Curve Graph?arrow_forwardThe Phillips curve illustrates a trade-off between * Equity and efficiency Supply and demand Unemployment rate and inflation rate Unemployment rate and interest ratearrow_forwardAssume that the federal government increases unemployment compensation, which of the following is the correct adjustment on the Phillips Curve Graph?arrow_forward
- The equation of the Phillips curve from 1970 to 1995 is: -17.4-1.2u₁. The natural rate of unemployment using this curve is 6.2%. (round your answer to one decimal place) The equation of the Phillips curve from 1996 to 2018 is: x=2.8% -0.16+ Which of the following explains why the natural rate of unemployment cannot immediately be calculated from the Philips curve? A. The expression only provides Ⓡ and a. B. The equation does not include a specific value for expected inflation. C. The expression only provides (m + z) and . D. None of the above. Using the line drawing tool, accurately graph the Phillips relation=2.8% -0.16 with inflation on the vertical axis and unemployment on the horizontal axis. Carefully follow the instructions above and only draw the required object. What is the natural rate of unemployment using the relation = 2.8% -0.16u, under the assumption that the value of x=2% The natural rate of unemployment fell to 5% between 1970-1995 and 1996-2018? (round your answer to…arrow_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_forwardWhen you graph the Phillips curve, what goes on the y-axis? Change in inflation Rate of inflation Change in consumer price Change in short-run outputarrow_forward
- Suppose that the public expects that inflation will be high and that episodes of high unemployment are politically difficult for policymakers. Is it possible for the economy to be at a bad equilibrium as a result of people’s expectations of inflation (i.e. expectations trap)? Explain in terms of a Phillips Curve diagram.arrow_forwardPhillips Curve Question: The Phillips Curve illustrates the relationship between: A) Inflation and government spending B) Inflation and unemployment C) Interest rates and inflation D) Economic growth and inflationarrow_forwardConsider an economy with a natural unemployment rate, u, of 7%. The expectations-augmented Phillips curve is: 1= - 0.5(u -ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: *--2(u-ü) What is the long-run Phillips curve: OA. Inflation rate 8- OB. OC. O D. none of the answers is correct Inflation rate Inflation rate 6- 6- 6-arrow_forward
- Based on your understanding of the Phillips curve, explain what happens to actual inflation (relative to expected inflation) when the actual unemployment rate is either above or below the natural rate of unemployment.arrow_forwardSuppose that the Phillips curve is given by +0.1-2 U₂ and expected inflation is given by -(1-0) * +04-1 where 0 is equal to zero and x 0.02 and does not change. The economy is initially at the natural rate of unemployment, which is 5%, when the authorities decide to bring the unemployment rate down to 3% and hold it there forever. With 0 equal to zero, this will yield a 6% rate of inflation every year. Now suppose that in year (t+6), 0 changes to 1. 0 might increase in this way because OA government policy would mandate inflationary expectations. B. inflation expectations adapt to persistently positive inflation OC. inflation expectations change constantly. OD. inflation expectations always adapt immediately to the last period's inflation. In year (+6), the inflation rate will be % (Enter your response as an integer.) In year (+7), the inflation rate will be % (Enter your response as an integer.) In year (+8), the inflation rate will be%. (Enter your response as an integer)arrow_forwardTo pursue economic growth in the middle of the pandemic, the government decided to increase the government’s spending. Illustrate the effects of this policy by drawing the short run Phillips curves! What would happen in the long run?arrow_forward
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