Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 31, Problem 1SPPA
To determine
To plot:
The
Expert Solution & Answer
Explanation of Solution
Aggregate suppply curve;
Phillips curve;
Economics Concept Introduction
Philips curve:
The Phillips curve is an economic concept which states a significant opposite relationship between inflation and
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INFLATION RATE (Percent)
1
2
5. Expectations and the Phillips curve
The following graph shows an economy in long-run equilibrium at point A (grey star symbol). The vertical line is the long-run Phillips curve (LRPC).
The downward-sloping curve labeled SRPC is the short-run Phillips curve passing through point A.
SRPC
LRPC
0
0
1
2
3
4
5
6
7
8
UNEMPLOYMENT RATE (Percent)
Which of the following is true along SRPC?
O The expected inflation rate is 5%.
The natural rate of unemployment is 3%.
The actual unemployment rate is 6%.
• } - *
SRPC2
ㄢ
C
(?)
Suppose that the Fed suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated action,
actual inflation falls to 3%.
On the previous graph, use the black point (plus symbol) to illustrate the short-run effects of this policy.
Now, suppose that-after a period of 3% inflation-households and firms begin to expect that the inflation rate will continue to be 3%.
On the previous graph, use…
Step 1
Plot the graphs.
The corresponding table includes a breakdown including Inflation Rate, Unemployment Rate,
Price Level, and Real GDP. Using the data below, plot the graphs:
Plot the short-run Phillips curve and the aggregate supply curve on separate graphs.
Plot the long-run Phillips curve on a separate graph, when the natural unemployment
rate is 6%.
Inflation Rate
Unemployment Rate
Price Level
Real GD
2%
7%
104
9.8
3%
6%
103
10.0
4%
5%
102
10.2
1. Aggregate demand, aggregate supply, and the Phillips curve
In the year 2020, aggregate demand and aggregate supply in the fictional country of Bartak are represented by the curves AD2020 and AS on the
following graph. The price level is 102. The graph also shows two possible outcomes for 2021. The first potential aggregate demand curve is given by
the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in
the outcome illustrated by point B.
PRICE LEVEL
108
107
106
105
104
103
102 +
101-
AS
ADB
AD2020
ADA
100 +
0
2
4
6
8
10
12
14
16
OUTPUT (Trillions of dollars)
Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would expect
to be associated with the lower unemployment rate (3%).
If aggregate demand is high in 2021, and the economy is at outcome B, the inflation rate between 2020 and 2021 is
Based on your answers to the…
Chapter 31 Solutions
Foundations of Economics (8th Edition)
Ch. 31 - Prob. 1SPPACh. 31 - Prob. 2SPPACh. 31 - Prob. 3SPPACh. 31 - Prob. 4SPPACh. 31 - Prob. 5SPPACh. 31 - Prob. 6SPPACh. 31 - Prob. 7SPPACh. 31 - Prob. 8SPPACh. 31 - Prob. 9SPPACh. 31 - Prob. 10SPPA
Ch. 31 - Prob. 11SPPACh. 31 - Prob. 1IAPACh. 31 - Prob. 2IAPACh. 31 - Prob. 3IAPACh. 31 - Prob. 4IAPACh. 31 - Prob. 5IAPACh. 31 - Prob. 6IAPACh. 31 - Prob. 7IAPACh. 31 - Prob. 8IAPACh. 31 - Prob. 9IAPACh. 31 - Prob. 10IAPACh. 31 - Prob. 1MCQCh. 31 - Prob. 2MCQCh. 31 - Prob. 3MCQCh. 31 - Prob. 4MCQCh. 31 - Prob. 5MCQCh. 31 - Prob. 6MCQ
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