Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 8P
To determine
(a)
To show:
The reason for an upward shift in the
To determine
(b)
To show:
The reasons for upwards and leftwards movement along a Phillips curve resembles to a movement upwards and rightwards along a short-run aggregate supply curve.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these 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?
As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand
caused by the housing and financial crises and a decrease in short-run aggregate supply caused by
rising commodity prices.
Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate
supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate
what happens on a Phillips-curve diagram.
LRAS
Aggregate Supply
Aggregate Demand
XE
0
LRPC
SRPC
Unemployment Rate
Price Level
Inflation Rate
Quantity of Output
Aggregate Demand
Equilibrium output will rise.
The effect on the inflation rate will be ambiguous.
The price level will fall.
Unemployment will rise.
Aggregate Supply
LRAS
Long-Run Equilibrium
SRPC
LRPC
Long-Run Equilibrium
(?)
Which of the following is true as a result of the two changes in aggregate demand and aggregate
supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think
only about the…
"As the economy moves upward along its aggregate supply curve, the economy also moves upward along its short-run Phillips curve." Is the previous statement correct or incorrect?
Knowledge Booster
Similar questions
- Which of the following is correct if there is a favorable supply shock? a. the short-run aggregate supply curve and the short-run Phillips curve both shift right. b. the short-run aggregate supply curve and the short-run Phillips curve both shift left. c. the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right. d. the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.arrow_forwardWhat is The Short-Run and Long-Run Phillips Curves?arrow_forwardHow 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 curvearrow_forward
- Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?arrow_forwardb) Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show what happens to output and the price level in the short-run . What happens to the unemployment rate? C) Use the sticky-warge theory of aggregate supply to explain what will happen to output and the price level in the long run(assuming no change in policy).What role does the expected price level play in this adjustment? Be sure to illustrate your analysis in a graph.arrow_forwardDraw the Phillips curve.Use the model of aggregate demand and aggregate supply to show how policy can move the economy from a point on this curve with high inflation to a point with low inflationarrow_forward
- 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 curvearrow_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_forwardThe 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.arrow_forward
- Suppose the Phillips curve is and the Aggregate Demand curve is Tt = Tt1+3ytot Yt = at 5(πt - 0.02) where at = Ot = 0 in the steady state. (a) Calculate the steady state values of output and inflation in this economy. (b) Calculate the short- and long-run responses of the economy to the following shocks (use a table to report your answers, as well as show them graphically on the AD-AS graph, as well as plot inflation and output against time): (1) A one-time decrease in ot to -0.05. (2) A one-time increase in at to 0.05 (at returns to 0 thereafter). (3) A permanent decrease in the Fed's inflation target from 0.02 to 0.arrow_forwardA. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?" B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages? C. Provide an example of the book's short-run model being based on "microfoundations."arrow_forwardWhich of the following points are on the short-run Phillips curve and the aggregate supply curve in 2021? A. Point B is at (6, 4) on the SRPC and at (10.1, 104) on the AS curve. B. Point C is at (6, 4) on the SRPC and at (106, 10.2) on the AS curve. C. Point D is at (2, 110) on the SRPC and at (10.4, 110) on the AS curve. D. Point A is at (8, 102) on the SRPC and at (10.0, 4) on the AS curve. Screenshot attached thanksarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning