Suppose that the government in the economy of the diagram below regards 9 percent unemployment as unacceptable. If the government insists on reducing the unemployment rate from 9 percent to 7 percent, regardless of the consequences, then a. pressure will build in the economy to continuously reduce the rate of inflation. b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment. c. the inflation rate will increase but the unemployment rate will stay at 7 percent. d. in the long run the rate of unemployment remains unchanged, but inflation will likely accelerate. Give explanations for the correct one
Suppose that the government in the economy of the diagram below regards 9 percent unemployment as unacceptable. If the government insists on reducing the unemployment rate from 9 percent to 7 percent, regardless of the consequences, then a. pressure will build in the economy to continuously reduce the rate of inflation. b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment. c. the inflation rate will increase but the unemployment rate will stay at 7 percent. d. in the long run the rate of unemployment remains unchanged, but inflation will likely accelerate. Give explanations for the correct one
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter25: The Keynesian Perspective
Section: Chapter Questions
Problem 13RQ: What tradeoff does a Phillips curve show?
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Suppose that the government in the economy of the diagram below regards 9 percent
a. pressure will build in the economy to continuously reduce the rate of inflation.
b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment.
c. the inflation rate will increase but the unemployment rate will stay at 7 percent.
d. in the long run the rate of unemployment remains unchanged, but inflation will likely accelerate.
Give explanations for the correct one
Transcribed Image Text:Inflation
Rate
LR Phillips Curve
SR Phillips Curve
9%
Unemployment Rate
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