Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 31, Problem 2MCQ
To determine
To show:
The shape of the long-run
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. Assume that the economy experiences no change in productivity, money demand or its natural rate of unemployment in either the short or long run. The inflation rate responds immediately to correspond to the money supply growth rate. However, wage inflation adjusts to changes in the inflation rate with a time lag.
Draw a diagram with inflation on the vertical axis and the unemployment rate on the horizontal axis that illustrates the Phillips curve relationship in the short run. Label the curve as PC1. Mark a point N on the horizontal axis that represents the natural rate of unemployment
The long-run Phillips Curve describes:
The relationship between unemployment and inflation after expectations of inflation have had time to adjust to
experience.
O An increase in expected inflation will cause nominal wages to rise, shifting both SRAS and the Phillips Curve up.
That there is a predictable negative relationship between the output gap and the unemployment rate but it is not one to
one.
The negative short-run relationship between the unemployment rate and the inflation rate.
10) In the Phillips curve equation, which of the following will NOT cause a rise in the current inflation
rate?
A) a rise in the minimum wage, z
B) a rise in the expected inflation rate
C) a rise in the employment insurance, z
D) a drop in the markup, ?
E) a fall in the unemployment rate
2. Using the AS and AD, WS and PS and IS-LM graphs, illustrate and explain the short run and medium
run effects of a less stringent enforcement of existing antitrust legislation (Monopolist market power
increased). Explain what happens to P, Y, i, W/P, I and u.
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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- What is the effect of an increase in aggregate demand on the short-run Phillips curve? When aggregate demand increases, _______. A. the short-run Phillips curve shifts upward B. the short-run Phillips curve shifts downward C. a movement occurs upward along the short-run Phillips curve D. a movement occurs downward along the short-run Phillips curvearrow_forwardThe Short Run Phillips Curve describes what? A predictable negative relationship between the output gap and the unemployment rate When the output gap is negative (a recessionary gap), the unemployment rate is above the natural rate. O A positive output gap implies an unemployment rate below the natural rate of unemployment. The negative short-run relationship between the unemployment rate and the inflation rate.arrow_forwardThe following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate-demand (AD) and long-run aggregate-supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 0 3 1 LRAS 6 12 9 OUTPUT (Trillions of dollars) LRPC 4 UNEMPLOYMENT (Percent) 2 3 15 5 AD SRPC 18 6 AD LRAS SRPC LRPCarrow_forward
- The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 3 LRAS 4 5 LRPC 9 AD O AD LRAS 6 12 UNEMPLOYMENT RATE (Percent) 15 SRPC 18 Ⓒ SRPC - LRPCarrow_forwardIf the actual unemployment rate falls below the natural unemployment rate, how does the actual inflation rate change? The actual inflation rate ________. A. doesn't change, but the short-run Phillips curve shifts leftward B. rises up along the short-run Phillips curve C. doesn't change, but the expected inflation rate rises D. rises and the natural unemployment rate fallsarrow_forwardAccording to the figure below, 8. Rightward AS shifts cause leftward Phillips curve shifts PC, PC, 6. 2. 1. 2 3 4. 8. Unemployment Rate (percent) What inflation rate would occur if the unemployment rate were 7 percent, with Instructions: Round your responses to the nearest O5 percent (eg. 1.0, 15, 2 0) a. PC? b- PC2? Inflation Rate (percent) 3.arrow_forward
- Question 16 In the Phillips Curve diagram below, the economy is currently at its non- accelerating inflation rate of unemployment with an inflation rate of L. Inflation (%) ABCD L M 0 S LRPC SRPC2 SRPC1 NAIRU T Unemployment (%) Which one of the following is least likely to reduce the non-accelerating inflation rate of unemployment? Measures to increase the mobility of labour Measures to improve the availability of job information An increase in spending on education and training A rise in aggregate demandarrow_forwardThe following graphs show the state of an economy that is currently in Tong-run equilibrium. The first graph shows the aggregate demănd (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phìllips curves (LRPC and SRPC). LRAS AD LRAS AD 12 15 18 OUTPUT (Trillions af dollars) LRPC SRPC LRPC SRPC 10 12 UNEMPLOYMENT RATE (Percent) Which of the following statements are true based on these graphs? Check all that apply. - The current quantity of output is greater than potential output. The natural level of output is $9 trillion. - The unemployment rate is currently 6% higher than the natural rate of unemployment. Suppose the central bank of the economy increases the money supply. Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves. in the The long-run effect of the central bank's policy is inflation rate, real GDP. in the unemployment rate, and in INFLATION RATEarrow_forward2. Analyze the effects of the following developments on both the short-run and the long-run Phillips curves. Use the graphs and explain in detail: a) a rise in the natural rate of unemployment b) a substantial increase in the price of energyarrow_forward
- Q22) What is the Phillips curve consistent with? Option the AD shifting along a stationary SRAS the AD shifting along the LRAS the LRAS shifting along a stationary AD the SRAS shifting along a stationary ADarrow_forward“Households decide to save a larger share of their income will shift aggregatedemand curve upward because higher saving will boost investment which inturn increase the demand for investment goods.” Do you agree with thestatement? Explain your choice. e. Graphically derive short run Phillips curve with the help of aggregate demand and supply model.arrow_forward3. a) Using AD-AS model, explain how a negative demand shock due to COVID 19 will affect the economy in the short run and long run (Show short run and long run adjustment in a single diagram). b) Derive the equation of Expectation Augmented Phillips curve using standard equation of Aggregate Supply (AS) and explain causes of inflation in terms of it. How does expectation augmented Phillips curve explain Stagflation?arrow_forward
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