Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 28, Problem 28.3.7PA
To determine
The impact of expansionary monetary policy on vertical Phillips curve .
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The following graph plots a short-run Phillips curve for a hypothetical economy.
Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position.
Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve (LRPC), or both.
As anticipated, inflation (rises/falls) and the short-run Phillips curve shifts (downward/upward) , highlighting the cost of fighting inflation, which is (higher unemployment in the long run/temporary unemployment/lower unemployment) .
Which of the following examples represents a cost of inflation? Check all that apply.
-An unintended redistribution of wealth from borrowers to lenders
-A general decrease in purchasing power
-Increased variability of relative prices
-A coffee shop’s costs to reprint its menu to reflect fluctuating prices
Homework (Ch 23)
The following graph shows a short-run Phillips curve for a hypothetical economy.
Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to
the appropriate position.
?
12
11
10
9
1
INFLATION RATE (Percent)
8
I
SRPC
H
SRPC
Q
Cl
The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium.
Suppose the central bank of the hypothetical economy decides to decrease the money supply.
On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy.
Hint: You may assume that the central bank's move was unanticipated.
SR Phillips Curve0246810126543210INFLATION RATE (Percent)UNEMPLOYMENT RATE (Percent)SR Phillips Curve
In the short run, an unexpected decrease in the money supply results in in the inflation rate and in the unemployment rate.
On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply.
0246810126543210INFLATION RATE…
Chapter 28 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 28 - Prob. 28.1.2RQCh. 28 - Prob. 28.1.3RQCh. 28 - Prob. 28.1.4RQCh. 28 - Prob. 28.1.5PACh. 28 - Prob. 28.1.6PACh. 28 - Prob. 28.1.7PACh. 28 - Prob. 28.1.8PACh. 28 - Prob. 28.1.9PACh. 28 - Prob. 28.1.10PACh. 28 - Prob. 28.1.11PA
Ch. 28 - Prob. 28.1.12PACh. 28 - Prob. 28.1.13PACh. 28 - Prob. 28.2.1RQCh. 28 - Prob. 28.2.2RQCh. 28 - Prob. 28.2.3PACh. 28 - Prob. 28.2.4PACh. 28 - Prob. 28.2.5PACh. 28 - Prob. 28.2.6PACh. 28 - Prob. 28.2.7PACh. 28 - Prob. 28.2.8PACh. 28 - Prob. 28.2.10PACh. 28 - Prob. 28.2.12PACh. 28 - Prob. 28.3.1RQCh. 28 - Prob. 28.3.2RQCh. 28 - Prob. 28.3.4PACh. 28 - Prob. 28.3.5PACh. 28 - Prob. 28.3.6PACh. 28 - Prob. 28.3.7PACh. 28 - Prob. 28.3.8PACh. 28 - Prob. 28.4.1RQCh. 28 - Prob. 28.4.2RQCh. 28 - Prob. 28.4.3RQCh. 28 - Prob. 28.4.5PACh. 28 - Prob. 28.4.6PACh. 28 - Prob. 28.4.7PACh. 28 - Prob. 28.4.9PACh. 28 - Prob. 28.4.10PACh. 28 - Prob. 28.4.11PACh. 28 - Prob. 28.4.12PACh. 28 - Prob. 28.4.13PACh. 28 - Prob. 28.1RDECh. 28 - Prob. 28.2RDECh. 28 - Prob. 28.2CTE
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- The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. SR Phillips Curve SR Phillips Curve 1 2 6 8 10 12 UNEMPLOYMENT RATE (Percent) In the short run, an unexpected increase in the money supply results in in the inflation rate and in the unemployment rate. INFLATION RATE (Percent)arrow_forwardThe following graph plots a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. INFLATION RATE (Percent) 12 INFLATION RATE (Percent) 11 10 1 0 12 1 10 2 As anticipated, inflation Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve (LRPC), or both. SRPC UNEMPLOYMENT (Percent) 2 LRPC SRPC 5 UNEMPLOYMENT (Percent) 5 SRPC and the short-run Phillips curve shifts SRPC LRPC Which of the following examples represents a cost of inflation? Check all that apply. A general decrease in purchasing power Increased variability of relative prices A coffee shop's costs to reprint its menu to reflect fluctuating prices An unintended redistribution of wealth from borrowers to lenders , highlighting the cost of fighting inflation,…arrow_forwardThe following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply. In the long run, the decrease in the money supply results in(increase, decrease, no change) in the inflation rate and (increase, decrease, no change) in the unemployment rate (relative to the economy's initial equilibrium).arrow_forward
- Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. In the short run, an unexpected decrease in the money supply results in (increase, decrease, no change) in the inflation rate and (increase, decrease, no change) in the unemployment rate.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_forwardDoes the effectiveness of monetary policy depend on inflationexpectations? Explainarrow_forward
- What is the short-run relationship between the unemployment rate and inflation rate as explained by the economist Phillips?arrow_forward“As long as we do not mind having high inflation, we can achieve as low a level of unemployment as we want. All we have to do is increase the demand for goods and services by using, for example, expansionary monetary policy.” True or false? Explain and illustrate your answer.arrow_forward1) https://www.econlowdown.org/resource-gallery/monetary_policy_tools 2) https://www.wsj.com/articles/zimbabwe-money-aa13a052?mod=hp_featst_pos5 3) https://news.sky.com/video/jamaican-bank-releases-reggae-song-on-inflation-12058864 please I need a short summary of these articles.arrow_forward
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