Answered: Explain how a rise in Government…

Explain how a rise in Government expending affects: 3.1. The Phillips curve in the short run? How do you think are employers and employees going to react to this policy under adaptive expectations?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 1SCQ: Do rational expectations tend to look back at past experience while adaptive expectations look ahead...

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Question

3. Explain how a rise in Government expending affects:
3.1. The Phillips curve in the short run? How do you think are employers and

employees going to react to this policy under adaptive expectations?

3.2. If the demand policy continues to apply how this is going to affect the Philips curve in the long run?

3.3. What about if the agents have rational expectations, is this policy effective?

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.

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