Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 31, Problem 6SPPA
To determine
To explain:
The effect on short run and long run
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Suppose that the natural unemployment rate is 7 percent and the expected inflation rate in 2017 is 3 percent a year. If the inflation rate is expected to rise to 5 percent a year in 2018, explain how the short-run and the long-run Phillips curves will change.
Using what you know about the Phillips curve, determine whether the following quantities will increase, decrease, or remain the same.
a. Unemployment in the short run after an increase in inflation: (Click to select) v
b. Unemployment in the long run after an increase in inflation: (Click to select) v
c. Inflation in the short run after a decrease in unemployment: (Click to select)
d. Inflation in the long run after a decrease in unemployment: (Click to select)
|(Click to select)
decrease
increase
remain the same
1. 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.
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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Similar questions
- Does the Phillips curve have a positive or negative slope? Explain how this slope is derived. When will an increase in aggregate demand not result in lower unemployment rates in the short run?arrow_forwardSuppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to try to achieve the lower rate. Use the concept of the short-run Phillips Curve to explain why these policies might at first succeed. Use the concept of the long-run Phillips Curve to explain the long-run outcome of these policies.arrow_forwardThe inflation rate is 2 percent a year, and the quantity of money is growing at a pace that will maintain that inflation rate. The natural unemployment rate is 7 percent, and the current unemployment rate is 9 percent. In what direction will the unemployment rate change? How will the short-run Phillips curve and the long-run Phillips curve shift?arrow_forward
- The 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? 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_forwardExplain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.arrow_forwardSuppose that the economy of Marvelia is in the long-run equilibrium. Explain and show the condition using both the short-run and long-run Phillips curves.arrow_forward
- According to the St. Louis Federal Reserve the natural unemployment rate is 4.42 percent (Q4 2023 ) and the U.S. Bureau of Labor Statistics (BLS) estimates the U.S. unemployment rate (U3, October 2023 B) to be 3.9 percent. If you expect unemployment to continue to fall the short-run Phillips curve would predict: OA decrease in the inflation rate. An increase in the inflation rate. ○ A decrease in the unemployment rate. ○ An increase in the unemployment rate.arrow_forwardConsider the short-run Phillips curve. If the actual unemployment rate falls below the full employment rate of unemployment, it should be expected that: the Phillips curve would shift downwards wages would fall the natural rate of unemployment would fall the inflation rate would increasearrow_forwardThe economy is characterized by the data: the actual unemployment rate is 3.6%, the natural unemployment rate is 5.4%, the inflation rate is expected to be 4%, the inflation response rate to the unemployment rate is 0.5. Using the Phillips curve equation, calculate the actual inflation rates. If the expected inflation rate rises to 7%, what will be the magnitude of cyclical unemployment?arrow_forward
- You have been told that expected inflation is greater than actual inflation in an economy. Show this on the Phillips curve and explain how the economy reverts to long run equilibriumarrow_forwardTo pursue economic growth in the middle of the pandemic, the government decided to increase the government’s spending. Illustrate the effects of this policy by drawing the short run Phillips curves! What would happen in the long run?arrow_forward
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