MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 17, Problem 4DQ
To determine
To describe: The reason that P curve works better in the period of 1954 to 1969 but not in the 1970s.
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- Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not?arrow_forwardWhat is the Phillips Curve? Explain the theory behind it carefully.arrow_forward1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaginary country of Aso-Kuju are represented by the curves AD2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADB, resulting in the outcome given by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 AD 2027 2 4 B AS ADB ADA 8 10 6 OUTPUT (Trillions of dollars) 12 14 16 (?) Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect outcome B▼ to be associated with the lower unemployment rate (5%). If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between 2027 and 2028…arrow_forward
- Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.arrow_forwardHow the Phillips Curve model (and associated diagram) could be modified to take account of shifts in the relationship over time?arrow_forwardGraphically derive short run Phillips curve with the help of aggregate demand and supply and demand.arrow_forward
- Using the Phillips curve: imagine a country is having a higher unemployment rate than usual for a longperiod of time (higher than the natural rate). What should happen in the short term and in the longterm?arrow_forwardHow can you show an output gap on the vertical phillips curve model?(can use the full inflation targeting model if that helps)arrow_forwardHow did the Phillips Curve look differently between pre-pandemic period vs. after-pandemic (recovery) period? What were the possible explanations?arrow_forward
- What are some factors that might infuence the slope of the Phillips curve?arrow_forwardWhat is Phillips curve? Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different.arrow_forwardWhat is the Phillips Curve, and how does it relate to the trade-off between inflation and unemployment?arrow_forward
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