a.
To draw: A labeled graph for the long run and short run
a.
Explanation of Solution
Calculation:
The long-run Phillip curve is showing the NAIRU and the equilibrium inflation rate E which is as follows:
Graph 1
In this graph, the short-run curve is downward sloping whereas the long-run curve is horizontal. E represents the equilibrium point whereas the long-run curve is the NAIRU (national
Phillip curve: Phillips curve depicts the relationship between the inflation rate and the unemployment rate. In short-run, the Phillips curve is downward sloping because the relationship is negative.
b.
To show: The effect on the graph if the increment is expected in the inflation rate.
b.
Explanation of Solution
Graph showing the effect if there is an increase in inflation rate which is as follows:
Therefore, if the inflation rate is increased, the Phillips curve will shift upward as the unemployment rate will reduce.
Phillip curve: Phillips curve depicts the relationship between the inflation rate and the unemployment rate. In short-run, the Phillips curve is downward sloping because the relationship is negative.
Chapter 6R Solutions
Krugman's Economics For The Ap® Course
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