At one time, policymakers interpreted the Phillips curve as offering a menu of inflation–unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?
What will be an ideal response?
The original view stemmed from the effect of demand-side changes on inflation and unemployment. Policymakers thought they could reduce unemployment by increasing aggregate demand, albeit at the cost of higher inflation. But it is now recognized that these points are not sustainable, so in the long run, wages and other costs will adjust, pushing the economy toward the natural rate of unemployment. An increase in AD will lead to higher resource costs and an eventual decrease in short-run AS, resulting in a higher price level and the loss of jobs created in the short run.
You might also like to view...
If an unanticipated decrease in aggregate demand results in an output below the economy's long-run capacity, long-run equilibrium will eventually be restored by
What will be an ideal response?
A country's export ratio is
A. The ratio of trade to GDP. B. The ratio of imports to GDP. C. The ratio of exports to GDP. D. The ratio of imports to exports.
Suppose that a consumer has a health insurance program with co-payments of $10 per doctor visit. If the consumer purchases 6 doctor visits and the bill charged by the doctor for 6 visits is $360, the portion of this cost covered by a third-party payer is:
A. $300. B. $60. C. $420. D. $360.
Exhibit 9-3 A monopolistic competitive firm in the long run
?
To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 9-3 will charge a price per unit of:
A. zero. B. $10 C. $20. D. $30.