Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem 3PA
Subpart (a):
To determine
TheEffect of change in consumer spending on aggregate supply , aggregate demand and Phillips curve .
Subpart (b):
To determine
TheEffect of change in consumer spending on aggregate supply, aggregate demand and Phillips curve.
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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 curve
In a certain economy, the expectations-augmented
Phillips curve is
π = T²2(u - u)
and
u=0.06.
a. Graph the Phillips curve of this economy for an
expected inflation rate of 0.10. If the central bank
chooses to keep the actual inflation rate at 0.10,
what will be the unemployment rate?
Inflation and unemployment data for Acadia can be found in the table below.
Year
2018
2019
2020
ion Rate (%)
5
Inflation Rate (%)
+
4.7
2.6
3.5
a. Draw a graph showing the Phillips curve for Acadia based on the values for inflation and unemployment in this economy from 2018
to 2020. Plot 3 points in total to draw the Phillips curve for Acadia below. Plot the plotting points in the order 2018, 2020 and then
2019.
Unemployment Rate (%)
Phillips Curve
for Acadia
5.7
8.9
6.8
Tools
Phillips Curve
Ⓡ
Chapter 22 Solutions
Principles of Macroeconomics (MindTap Course List)
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Similar questions
- A. 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_forwardThe accompanying graph depicts the Short-Run Phillips O Curve (SRPC) when the public expects no inflation in the economy. Macmillan Learning a. According to this SRPC, what would inflation be if unemployment is 9%? 0 Incorrect b. Please move the SRPC line to reflect what would happen if the public's inflation expectations increased so that they now expect the inflation rate to increase by 2%. c. If the unemployment rate is still 9%, what is the new inflation rate after this change in expectations? % 2 % Inflation rate (%) 7 6 5 4 3 2 1 0 -1 -2 -3 0 1 SRPC 2 3 4 5 6 Unemployment rate (%) 7 8 9 10arrow_forwardDraw a correctly labeled graph showing a short-run Phillips curve with an expected inflation rate of 0% and the corresponding long-run Phillips curve a. b. On your graph, label the nonaccelerating inflation rate of unemployment On your graph, show what happens in the long run if the government decides to decrease the unemployment rate below the nonaccelerating inflation rate of unemployment. Explain. С.arrow_forward
- Assume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. a. Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph. b. Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? i. Short-run aggregate supply curve. Explain. ii. Long-run Phillips curve c. Identify a fiscal policy action that could be used to reduce the unemployment rate in the short run. d. Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c). e. Based on the change in real GDP…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_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_forward
- The Phillips curve is A. a positive relationship between price stability and constant, small-increment changes in the fiscal policy on the part of the Fed. B. a positive relationship in the long run between the rate of inflation and the rate of unemployment. C. a negative relationship between the inflation rate and the unemployment rate, at least in the short run. D. a positive relationship between the unemployment rate and the real Gross Domestic Product (GDP) level.arrow_forwardThe Phillips curve shows that, in the short-run: A. expected changes in aggregate demand produce a positive relationship between inflation and unemployment. B. unexpected changes in aggregate demand produce a positive relationship between inflation and unemployment. C. expected changes in aggregate demand produce an inverse relationship between inflation and unemployment. D. unexpected changes in aggregate demand produce an inverse relationship between inflation and unemployment.arrow_forwardSuppose that the government is considering enacting an expansionary policy in 2023 that would shift aggregate demand in 2024 from ADAADA to ADBADB. This would cause a (move along , shift of) the short-run Phillips curve, resulting in (increase, decrease) in the inflation rate and (increase, decrease) in the unemployment rate.arrow_forward
- How 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_forwardI'd like help on first 3 subsectionsarrow_forwardPlease answer fastarrow_forward
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