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.
If the unemployment rate is constant at 4 percent per year, the inflation rate should remain constant, as shown in the graph below (as long as the unemployment rate is 4 percent, the inflation rate does not change). If the unemployment rate rises to 7 percent, then the Phillips curve would predict that the inflation rate will be lower than it was when unemployment was 4 percent.
You might also like to view...
If there is no one who is interested in borrowing from a bank,
a. the bank's excess reserves will be zero b. there will be no process of money creation c. the full money multiplier potential will be reached d. the legal reserve requirement must be equal to zero e. the legal reserve requirement must be equal to 100 percent
The simultaneous occurrence of inflation and unemployment is called
a. depression b. downturn c. deflation d. demand-pull inflation e. stagflation
Refer to the information provided in Figure 2.6 below to answer the question(s) that follow.
Figure 2.6Refer to Figure 2.6. If the economy is at ppf1, a change in consumer preferences would be shown by a
A. movement along ppf1. B. movement along ppf2. C. shift from ppf1 to ppf2. D. shift from ppf2 to ppf1.
The Framing Gallery frames posters and has total fixed costs of $1,000. The Framing Gallery is currently framing ________ posters if its average variable cost is $20 and its average total cost is $30.
A. 25 B. 100 C. 5 D. an indeterminate number of