Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 9, Problem 5RQ
To determine
The
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What is Phillips curve How does it explain
inflation?
Explain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.
When you graph the Phillips curve, what goes on the y-axis?
Change in inflation
Rate of inflation
Change in consumer price
Change in short-run output
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- What are some factors that might infuence the slope of the Phillips curve?arrow_forwardTo fight the economic slowdown from the Covid-19 pandemic, the Bank of Canada decides to expand the money supply. a) Using diagrams, carefully explain whether or not this policy would be effective under a fixed value for the exchange rate? b) What is the effect of this policy on the interest rate in the long run? Explain your answer.arrow_forwardThe 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?Ā Ā 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.arrow_forward
- 1. 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 Bā¼ 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 2028ā¦arrow_forwardWhat is the "Phillips Curve"? Ā Why do inflation and unemployment tend to be inversely related?arrow_forwardFrom your understanding what the Phillips curve is, is it possible for the unemployment rate to increase while inflation also increases? Explain.arrow_forward
- What is Phillips curve? Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different.arrow_forwardIf 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?Ā Ā 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.arrow_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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