Phillips Curve - This graph shows the inverse relationship between inflation and unemployment in the economy. It is used to illustrate the trade-off between inflation and unemployment and to help policymakers decide on appropriate policy responses. show this graph with an example.
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- The graph shows Iran's short-run Phillips curve and long-run Phillips curve when the natural unemployment rate is 10 percent and the expected inflation rate is 12 percent a year. Draw a point to show the current unemployment rate and inflation rate according to the news clip. Suppose Iran removes the subsidies and consumers don't know what the higher prices will be. Illustrate the most likely path of unemployment and inflation. Draw either an arrow along the SRPC showing the direction of change, or a new SRPC. Label it 1. Suppose instead that Iran removes the subsidies and announces the new prices so that consumers know what they are. Illustrate the most likely path of inflation and unemployment. Draw either an arrow along the SRPC showing the direction of change, or a new SRPC Label it 2. ILSThe Phillips curve represents the relationship between unemployment and inflation. You are required to think about the impact on the economy of movements along the curve. 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.Use a graph to explain the trade‐off between inflation and unemployment.
- 1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaginary country of Aso-Kuju are represented by the curves AD2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADB, resulting in the outcome given by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 AD 2027 2 4 B AS ADB ADA 8 10 6 OUTPUT (Trillions of dollars) 12 14 16 (?) Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect outcome B▼ to be associated with the lower unemployment rate (5%). If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between 2027 and 2028…Using what you know about the Phillips curve, determine whether the following quantities will increase, decrease, or remain the same. a. Unemployment in the short run after an increase in inflation: (Click to select) v b. Unemployment in the long run after an increase in inflation: (Click to select) v c. Inflation in the short run after a decrease in unemployment: (Click to select) d. Inflation in the long run after a decrease in unemployment: (Click to select) |(Click to select) decrease increase remain the sameA.W. Phillips drew a graph which became known as the Phillips curve. Which one of the following statements regarding this curve is correct? (a) The variables used in the Phillips curve are interest rate and rate of unemployment; (b) The empirical evidence supporting the original Phillips curve came from the United States; (c) The original Phillips curve illustrated an inverse relationship between the natural rate of unemployment and the expected inflation rate; (d) The original Phillips curve illustrated a trade-off between the inflation rate and the unemployment rate.
- The following graph shows an economy in long-run equilibrium at point A (grey star symbol). The vertical line is the long-run Phillips curve (LRPC). The downward-sloping curve labeled SRPC is the short-run Phillips curve passing through point A. INFLATION RATE (Percent) ཝ་ཤ་ཁ་ཀ་༥ 1 SRPC LRPC 0 0 1 2 3 UNEMPLOYMENT RATE (Percent) Which of the following is true along SRPC? The natural rate of unemployment is 2%. The actual unemployment rate is 1%. The expected inflation rate is 2%. SRPC2 с Suppose that the Fed suddenly and unexpectedly increases the money supply in an effort to reduce unemployment. As a result of this unanticipated action, actual inflation rises to 5%. On the previous graph, use the black point (plus symbol) to illustrate the short-run effects of this policy. Now, suppose that-after a period of 5% inflation-households and firms begin to expect that the inflation rate will continue to be 5%. On the previous graph, use the purple line (diamond symbol) to draw SRPC₂, the…When you graph the Phillips curve, what goes on the y-axis? Change in inflation Rate of inflation Change in consumer price Change in short-run outputYou observe the following short-run Phillips curve for the economy: T = 9.2 -0.26(u - 6.5%) + v. There are no supply shocks to the economy, and the actual unemployment rate is 6.5% (and will stay that way for the foreseeable future). What will expected inflation be next year? Write your answer as a percentage, and round at one (1) decimal. Do not write the percentage sign. If you need more information to answer the question, write "O".
- Problem 2. Consider the following Phillips Curve n = En – 0.6(u – 0.05) a) Explain the above Philips Curve briefly. b) Assume that Ex = 0.02. Draw the graph of the Phillips curve. What is the slope of the curve? What are the long-run unemployment rate and the long-run inflation rate? c) Is there any possibility that a government can decrease the inflation rate without any change in the unemployment rate? If yes, how? Explain it. d) Is there any possibility that a government can increase the inflation rate without any change in the unemployment rate? If yes, how? Explain it. e) Considering the Philips Curve as T = 0.02 – 0.6(u – 0.05), and the government announces that it implements an expansionary monetary policy: • el) Describe the Lucas Critique. • e2) Considering the Locus Critique, do you think that the above Philips curve is a good equation to study the relationship between inflation and unemployment? Why? Explain it.The corresponding table includes a breakdown including Inflation Rate, Unemployment Rate, Price Level, and Real GDP. Using the data below, plot the graphs: Plot the short-run Phillips curve and the aggregate supply curve on separate graphs. Plot the long-run Phillips curve on a separate graph, when the natural unemployment rate is 6%. Inflation Rate Unemployment Rate Price Level Real GDP 2% 7% 104 9.8 3% 6% 103 10.0 4% 5% 102 10.21. Problems and Applications Q1 Consider the following four situations: A. Actual inflation is 6 percent, and expected inflation is 6 percent. B. Actual inflation is 4 percent, and expected inflation is 6 percent. C. Actual inflation is 4 percent, and expected inflation is 4 percent. D. Actual inflation is 6 percent, and expected inflation is 4 percent.
