Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 35 - Part XII - The Short-Run Trade-Off between Inflation and Unemployment - Problems and Applications - Page 791: 2

Answer

a) Please see the upper graph of file "2ab". Increasing the natural rate of unemployment shifts the long run Phillips curve to the right. Also, the increased natural rate of employment shifts the short run Phillips curve to the right. The expected rate of inflation doesn't change. b) Please see the lower graph of file "2ab". The decreased price of oil shifts the short run Phillips curve to the left. Oil is an input for items in the economy, so the decreased input price allows more workers to be employed. The long run Phillips curve doesn't move.

Work Step by Step

c) Please see the upper graph of file "2cd". Increasing government spending will increase the aggregate demand. Increasing the aggregate demand will move the economy along the short run Phillips curve. The economy will move from point A to point B. The increased spending increases the inflation rate and cuts the unemployment rate. The long run Phillips curve doesn't move. d) Please see the lower graph of file "2cd". With the expected inflation rate to decrease, the short run Phillips curve shifts to the left. The long run Phillips curve doesn't move. The equilibrium inflation rate does fall, though.
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