Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 29, Problem 19APA
To determine
Identify the changes in the long-run
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Suppose the Phillips curve in Country A is estimated to be
??=???−0.25(??−?∗?)πt=πte−0.25(ut−ut∗)(supplied in picture)
The natural rate of unemployment in the year 2020 equals 3%. Inflation in the year 2020 is expected to be around 1%. The Okun’s coefficient in Country A equals 2. The central bank of Country A is considering three possible monetary policy scenarios for the year 2020.
Scenario 1: the central bank performs a monetary contraction, and the inflation rate becomes 0.5%.
Scenario 2: the central bank performs a monetary expansion, and the inflation rate becomes 1.5%.
Scenario 3: the central bank keeps monetary policy unchanged, and the inflation rate matches expected inflation and equals 1%.
For each of these policy scenarios, 1) Determine the corresponding rate of cyclical unemployment in 2020 2) Determine the actual unemployment ??ut that would result in 2020 3) Use Okun’s law to determine the corresponding…
The inflation rate is 6 percent a year, the unemployment rate is 4 percent, and the economy is at full employment.
Draw the long-run Phillips curve. Label it LRPC.
Draw the short-run Phillips curve. Label it SRPC.
The Fed announces that it intends to slow the money growth rate to keep the inflation rate at 3 percent a year for the foreseeable
future. People believe the Fed.
Draw an arrow along a curve to show the change in the inflation rate and the unemployment rate in the short run and in the long run.
1
10-
8-
6
4-
2-
Inflation rate (percent per year)
G
What are two possible negative outcomes of the increased inflation to 7.3% currently in Australia?
don't provide plagiarism a
Chapter 29 Solutions
Macroeconomics
Ch. 29.1 - Prob. 1RQCh. 29.1 - Prob. 2RQCh. 29.1 - Prob. 3RQCh. 29.1 - Prob. 4RQCh. 29.1 - Prob. 5RQCh. 29.2 - Prob. 1RQCh. 29.2 - Prob. 2RQCh. 29.2 - Prob. 3RQCh. 29.2 - Prob. 4RQCh. 29.2 - Prob. 5RQ
Ch. 29.2 - Prob. 6RQCh. 29.2 - Prob. 7RQCh. 29.3 - Prob. 1RQCh. 29.3 - Prob. 2RQCh. 29.3 - Prob. 3RQCh. 29.3 - Prob. 4RQCh. 29.3 - Prob. 5RQCh. 29.3 - Prob. 6RQCh. 29.4 - Prob. 1RQCh. 29.4 - Prob. 2RQCh. 29.4 - Prob. 3RQCh. 29.4 - Prob. 4RQCh. 29 - Prob. 1SPACh. 29 - Prob. 2SPACh. 29 - Prob. 3SPACh. 29 - Prob. 4SPACh. 29 - Prob. 5SPACh. 29 - Prob. 6SPACh. 29 - Prob. 7SPACh. 29 - Prob. 8SPACh. 29 - Prob. 9APACh. 29 - Prob. 10APACh. 29 - Prob. 11APACh. 29 - Prob. 12APACh. 29 - Prob. 13APACh. 29 - Prob. 14APACh. 29 - Prob. 15APACh. 29 - Prob. 16APACh. 29 - Prob. 17APACh. 29 - Prob. 18APACh. 29 - Prob. 19APACh. 29 - Prob. 20APACh. 29 - Prob. 21APACh. 29 - Prob. 22APACh. 29 - Prob. 23APACh. 29 - Prob. 24APA
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Similar questions
- Inflation rate (percent per year) buy treasury bills lower taxes Increase the money supply Refer to Figure 17-1. What should the Federal Reserve do if it wants to move from point A to point B in the short-run Phillips curve depicted in the figure above? lower the discount rate Phillips curve sell treasury bills Unemployment rate (percent)arrow_forwarda) What is Phillips curve? Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different. b) Suppose the economy is in a long-run equilibrium. Suppose a wave of business pessimism reduces aggregate demand. Show the effect of this shock on your diagram from part (a). If the RBI undertakes expansionary/contractionary monetary policy, can it return the economy to its original inflation rate and original unemployment rate? (b) What is sacrifice ratio?arrow_forwardYou're a pricing analyst for a manufacturing firm. You are tasked with predicting how average prices will change over the next quarter to help your manager decide how to change her prices. How might you find the best estimate of the likely inflation rate? For the best estimate, obtain the average forecast of many economists. look to the financial markets. analyze surveys of people's inflation expectations. rely on the forecast of an eminent economist.arrow_forward
- What does the short-run Phillips curve predict will happen to inflation and unemployment if the Bank of Canada were to reduce the growth rate of the money supply?Select one:a. inflation would fall, but unemployment would riseb. inflation and unemployment would both risec. inflation would rise, but unemployment would falld. inflation and unemployment would both fallarrow_forwardFind a period in Canadian history that experienced demand pull inflation. a) Describe the time period and rate of inflation b) graph illustrating the effects of demand pull inflation on the economy at that time. 2. Find a period in Canadian History that experienced cost push inflation a) describe the situation and cause of this type of inflation b) graph illustrating the effects of cost push inflation on the economy at that time.arrow_forward1. The central Bank announces that it expects inflation to be relatively low while unemployment rises in the following months. What you be an expected monetary policy action as a result of this forecast? a. increase government spending b. decrease the discount rate c. increase the reserve ration d. sell bonds on the open market e. decrease marginal income tax rates 2. The long-run Phillips Curve indicates that there is no relationship between inflation and unemployment in the long run. Therefore, which of the following would cause an increase in the natural rate of unemployment and shift the LRPC to the right? a. An increase in unemployment benefits for the long-term unemployed. b. The elimination of various social welfare programs. c. A decrease in the duration of unemployment d. An increase in core inflation rates e. Expansionary monetary policiesarrow_forward
- Figure 17-5 Inflation rate (percent per year) 10% 5 0 Long-run Phillips curve 5.5% 7.5 Short-run Phillips curve Unemployment rate (percent)arrow_forward39. Model the Phillips curve and explain what the curve means in terms of policy.arrow_forwardunemployment In the short run in the inflation rate and 4. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. 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. BATE INFLATION RATE (Parcent) 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 increase in the money supply UNEMPLOYMENT RATE (Percent) In the long run, the increase in the money supply results in (relative to the economy's initial equilibrium). ·0 in the inflation rate and in the…arrow_forward
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