Question 1

An estimate of the short-run Phillips curve for a hypothetical economy is u = 12 - 1.5p,where u is the unemployment rate and p is the inflation rate.
a. If the natural rate of unemployment is 8 percent, what is the expected inflation rate that is consistent with this short-run Phillips curve?
b. Suppose the government passes legislation that decreases the natural rate of unemployment by two percentage points. What is the new long-term inflation rate?

Accepted Answer

The answer of An estimate of the short-run Phillips curve...

Question 2

This exercise uses an aggregate-supply curve and a production function to construct the corresponding Phillips curve.Its purpose is to better understand the assumptions behind the short-run Phillips curve.Suppose the aggregate production function of an economy is Y=L,where Y is output and L is labour (employment).Unemployment is U=LF-L,and the unemployment rate is u = U/LF.We also need to assume that the labour force (LF)is constant,such that an increase in the number of employed people (DL)corresponds to an equal decrease in the number of unemployed (-DU).Let us assume a very simple-short run aggregate supply curve,Y=P.Question: For the price levels P equal 100,105,and 115,find two inflation-unemployment points in a Phillips curve diagram.Consider LF=120.

Accepted Answer

The answer of This exercise uses an aggregate-supply curve and...

Question 3

Discuss the factors determining the slope of the short-run Phillips curve.Is the linear shape appropriate? Why,or why not?

Accepted Answer

The answer of Discuss the factors determining the slope of...

Question 4

Use the AD?AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

Accepted Answer

The answer of Use the AD?AS model and the Phillips...

Question 5

Suppose the central bank wants to permanently reduce the inflation rate.What are the possible ways of doing so,and what are the consequences?

Accepted Answer

The answer of Suppose the central bank wants to permanently...

Question 6

Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?

Accepted Answer

The answer of Explain the causes and consequences of the...

Question 7

Suppose the government passes legislation that decreases the natural rate of unemployment.How does this change the long- and short-run Phillips curves?

Accepted Answer

The answer of Suppose the government passes legislation that decreases...

Quiz 16: The Short-Run Tradeoff between Inflation and Unemployment

Discuss the factors determining the slope of the short-run Phillips curve.Is the linear shape appropriate? Why,or why not?

Use the AD?AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.

Suppose the central bank wants to permanently reduce the inflation rate.What are the possible ways of doing so,and what are the consequences?

Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?

Suppose the government passes legislation that decreases the natural rate of unemployment.How does this change the long- and short-run Phillips curves?