Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 12, Problem 3RQ
To determine
To Explain: The means by which the
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The Phillips curve represents the relationship between unemployment and inflation. You are required to think about the impact on the economy of movements along the curve. If the unemployment rate in the economy is steady at 4 percent per year, how does the short-run Phillips curve predict that the inflation rate will be changing, if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations. Provide an appropriate graph to support your discussion.
How does the short-run Phillips curve reflect an increase in the price of oil such as occurred in the early 1970s?
as a leftward shift in the short-run Phillips curve
as a rightward shift in the short-run Phillips curve
as a downward movement along the short-run Phillips curve
as an upward movement along the short-run Phillips curve
Inflationary expectations are an important driver of the Phillips curve
relationship. What are three different ways inflationary expectations
might be modelled? Depict each graphically.
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Similar questions
- Does the Phillips curve have a positive or negative slope? Explain how this slope is derived. When will an increase in aggregate demand not result in lower unemployment rates in the short run?arrow_forwardAccording to the Phillips curve, there is an inverse relationship between inflation and unemployment. It is possible for policymakers to “buy” lower unemployment by allowing higher inflation. Using a Phillips curve, illustrate and explain how nationwide rioting and looting will impact the economy and why this supply shock has implications for policymakersarrow_forwardAs with demand and supply analysis, changes in the economy can cause both shifts of and movements along the short-run Phillips curve. Which of the following would cause a shift of the short-run Phillips curve? Check all that apply. An increase in government spending A decrease in short-run aggregate supply An increase in the expected inflation ratearrow_forward
- The effect of expectations on the Phillips curve is considered a Phelps’s primary contribution. We can use a modified version of the Phillips curve to illustrate the point that Phelps was trying to make. The key difference is that the position of this new kind of curve changes when the inflation rate that people expect changes. When actual inflation changes and expected inflation stays the same, you move along the curve. But when expected inflation changes, the entire curve shifts. Since expectations shift this curve, economists call it an expectations-augmented Phillips curve. The following graph shows a Phillips curve for a hypothetical economy where the natural rate of unemployment is 8%. Initially, the expected inflation rate equals the actual inflation rate of 4%. Use the Phillips curve on the graph to answer the questions that follow. Consider a scenario where the inflation rate unexpectedly rises from 4% to 5%. Wages rise to match the new level of inflation. Workers believe that…arrow_forwardWhich of the following is true about the Phillips curve? The empirical relationship between unemployment and inflation in the US disappeared after the 1970s. This means that the theoretical Phillips curve does not represent the world well. For a researcher to identify the theoretical Phillips curve from empirical data, the economy must be subject to supply shocks. The empirical Phillips curve implies that a government must choose between either low unemployment and high inflation or high unemployment and low inflation. When inflation expectations adjust, the negative empirical correlation between inflation and unemployment might disappear.arrow_forwardDescribe the concept of an accelerationist Phillips Curve and how it manifests as an empirical relationship in macroeconomic data (if you want to show data, you may choose any country). Evaluate the role and significance of inflation expectations for an accelerationist Phillips Curve.arrow_forward
- Which of the following is true about the Phillips curve? Group of answer choices The empirical relationship between unemployment and inflation in the US disappeared after the 1970s. This means that the theoretical Phillips curve does not represent the world well. For a researcher to identify the theoretical Phillips curve from empirical data, the economy must be subject to supply shocks. The empirical Phillips curve implies that a government must choose between either low unemployment and high inflation or high unemployment and low inflation. When inflation expectations adjust, the negative empirical correlation between inflation and unemployment might disappear.arrow_forwardIf expected inflation decreases, does the short-run Phillips curve shift? If so, what direction does it shift? Does the long-run Phillips curve shift? If so, what direction does it shift?arrow_forwardHow does the modern view of the Phillips curve differ from the earlier view? ___The early view of the Phillips curve suggested that the Phillips curve shifts with changes in inflation expectations. Such a view failed to recognize that the Phillips curve is a fixed inverse relationship between inflation and unemployment. ___The early view of the Phillips curve suggested that the Phillips curve is fixed, with higher rates of inflation associated with lower rates of unemployment, and vice versa. Such a view failed to recognize the importance of inflation expectations in determining the position of the short-run Phillips curve. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- What is Inflation and Unemployment? Explain the inflation expectations-augmented Philip Curve or modern version of the Phillips Curve in detail.arrow_forwardGraphically derive short run Phillips curve with the help of aggregate demand and supply and demand.arrow_forwardWould you expect to see long-run data trace out a stable downward-sloping Phillips curve?arrow_forward
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