Figure 13.11 Alt text for Figure 13.11: In figure 13.11, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.11: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve 1, begins at the top left corner and slopes down to the bottom center.A straight line labelled, short-run Philips Curve 2, follows the same slope as Curve 1, but is plotted to the right.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, and intersects the short-run Philips Curve 1 at point A near the bottom end of both lines.Point B is plotted half way along the short-run Philips Curve 1.Long-run Philips Curve intersects short-run Philips Curve 2 at point C near the top half of the curves.Point D is plotted more than half way along the short-run Philips Curve 2.Points E and F are plotted close to the left and right ends, respectively, of the short-run Philips Curve 2.
-Refer to Figure 13.11.A(n)________ would be depicted as a movement from A to D to C.

Question

Figure 13.11  Alt text for Figure 13.11: In figure 13.11, a graph shows the short-run and long-run Phillips curves.
Long description for Figure 13.11: The x-axis is labelled, unemployment rate percent, and the y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve 1, begins at the top left corner and slopes down to the bottom center.A straight line labelled, short-run Philips Curve 2, follows the same slope as Curve 1, but is plotted to the right.A straight line labelled, long-run Philips Curve, is perpendicular to the x-axis, and intersects the short-run Philips Curve 1 at point A near the bottom end of both lines.Point B is plotted half way along the short-run Philips Curve 1.Long-run Philips Curve intersects short-run Philips Curve 2 at point C near the top half of the curves.Point D is plotted more than half way along the short-run Philips Curve 2.Points E and F are plotted close to the left and right ends, respectively, of the short-run Philips Curve 2.
-Refer to Figure 13.11.A(n)________ would be depicted as a movement from A to D to C.

Quizplus · Accepted Answer

A supply shock, such as rising oil prices, would cause a movement from point A to D to C. This is because an increase in oil prices would lead to an increase in production costs, which would shift the short-run Phillips Curve 1 upward to the left, from point A to D. As a result, in the short run, the economy would experience higher inflation and higher unemployment. In the long run, however, the economy would adjust and the short-run Phillips Curve 2 would shift upward to the left, intersecting with the long-run Phillips Curve at point C. This would result in higher unemployment but no change in inflation.

Figure 1311 Alt Text for Figure 13