Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 29, Problem 20APA
(a)
To determine
Explain the claim that the
(b)
To determine
Identify how the Philips curve model accounts for the facts reported in the news clip.
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The 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.
According to the St. Louis Federal Reserve the natural unemployment rate is 4.42 percent (Q4
2023 ) and the U.S. Bureau of Labor Statistics (BLS) estimates the U.S. unemployment rate
(U3, October 2023 B) to be 3.9 percent. If you expect unemployment to continue to fall the
short-run Phillips curve would predict:
OA decrease in the inflation rate.
An increase in the inflation rate.
○ A decrease in the unemployment rate.
○ An increase in the unemployment rate.
Watch the 2012 OpenLearn from The Open University video The Phillips Curve - 60 second adventures in economics and answer the following questions based on the video and your reading of the textbook:
What is the Phillips Curve? Explain.
Suppose the unemployment rate in Canada is very high. If the relationship depicted by the Phillips Curve is true, what could the hands-on approach to economic policy do to reduce unemployment? How would such a policy affect inflation?
Explain why both unemployment and inflation rose in the 1970s.
2. Consider the following scenarios and briefly explain how each scenario would affect short-run aggregate supply (SAS), long-run aggregate supply (LAS) or aggregate demand (AD) in Canada. In some situations, more than one may be affected.
Canada produces larger number of university graduates who possess higher levels of education and skill.
Depletion of resources cause increase in the prices of key inputs in production.
Canada’s trading…
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
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- (Problem 3, Page 477) In a certain economy the expectations-augmented Phillips curve is π = π² − 2 (u – ū) and ū= 0.06. a. Graph the Phillips curve of this economy for an expected inflation rate of 0.10. If the Fed chooses to keep the actual inflation rate at 0.10, what will be the unemployment rate? b. An aggregate demand shock (resulting from increased military spending) raises expected inflation to 0.12 (the natural unemployment rate is unaffected). Graph the new Phillips curve and compare it to the curve you drew in Part (a). What happens to the unemployment rate if the Fed holds actual inflation at 0.10? What happens to the Phillips curve and the unemployment rate if the Fed announces that it will hold inflation at 0.10 after the aggregate demand shock, and this announcement is fully believed by the public? c. Suppose that a supply shock (a drought) raises expected inflation to 0.12 and raises the natural unemployment rate to 0.08. Repeat Part (b).arrow_forwardUsing what you know about the Phillips curve, determine whether the following quantities will increase, decrease, or remain the same. a. Unemployment in the short run after an increase in inflation: (Click to select) v b. Unemployment in the long run after an increase in inflation: (Click to select) v c. Inflation in the short run after a decrease in unemployment: (Click to select) d. Inflation in the long run after a decrease in unemployment: (Click to select) |(Click to select) decrease increase remain the samearrow_forward1. Problems and Applications Q1 Consider the following four situations: A. Actual inflation is 6 percent, and expected inflation is 6 percent. B. Actual inflation is 4 percent, and expected inflation is 6 percent. C. Actual inflation is 4 percent, and expected inflation is 4 percent. D. Actual inflation is 6 percent, and expected inflation is 4 percent.arrow_forward
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