Starting on a Phillips curve with expected inflation equal to 5% and unemployment at its natural rate, show what happens to unemployment if the Fed tries to reduce inflation, but has no credibility
As time passes and people realize that the inflation rate is now lower, what happens to the short-run Phillips curve?
The unemployment rate rises as the economy moves along the Phillips curve and as inflation declines. As time passes, inflation expectations begin to decline, shifting the Phillips curve down and to the left until the unemployment rate returns to its natural rate and inflation and expected inflation are equal at a lower level.
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Congressman Localstuff always votes for a balanced budget amendment to the U.S. Constitution. He also always votes for spending bills supported by the leadership of his political party. Is this rational?
Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run
a. True b. False Indicate whether the statement is true or false
Firms who are attempting to engage in price discrimination will offer customers with a ________ demand a higher price and customers with a(n) ________ demand a lower price.
A. lower; higher B. normal; inferior C. less elastic; more elastic D. more elastic; less elastic
For this question, suppose the domestic interest rate is 4% and that the foreign interest rate is 7%. And finally, assume that the domestic currency is expected to depreciate by 3% during the coming year. Given this information, we know that
A) individuals will only hold domestic bonds. B) individuals will only hold foreign bonds. C) individuals will be indifferent about holding domestic or foreign bonds. D) the interest parity condition holds.