4. Monetary policy and the Phillips curveThe following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment raand inflation rate. Assume that the economy is currently in long-run equilibrium.Suppose the central bank of the hypothetical economy decides to increase the money supply.On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy.Hint: You may assume that the central bank's move was unanticipated.INFLATION RATE (Percent)0INFLATION RATE (Percent)3NDSR Philips CurveIn the short run, an unexpected increase in the money supply results inunemployment rate.12UNEMPLOYMENT RATE (Parcent)On the following graph, shift the curve or drag the blue point along thesupply.31512UNEMPLOYMENT RATE (Percent)1515In the long run, the increase in the money supply results in(relative to the economy's initial equilibrium).18SR Phillips Curvea decrease?in the inflation rate andin thean increase th, to show the long-run effects of the increase in the moneyno changein the inflation rate andin the unemployment rate

It can be defined as a form of graphical of the concept of economics which shows the rate of…

4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment ra and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. ercent) 6 5 SR Philips Curve

4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment ra and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. ercent) 6 5 SR Philips Curve

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 4PA

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4. Monetary policy and the Phillips curve the following o Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, c do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. unemployment rate. In the short run, an unexpected increase in the money supply results in in the inflation rate and in the 2 UNEMPLOYMENT RATE (Percent) a hypothetical economy. The given point on the graph indicates the initial rates of Assume that the economy is currently in long-run equilibrium. 3 6 0 INFLATION RATE (Percent) SR Pips Curve . SR Phillips Curve
4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 6 5 N 1 0 0 SR Phillips Curve + 4 2 3 UNEMPLOYMENT RATE (Percent) 1 5 SR Phillips Curve In the short run, an unexpected increase in the money supply results in the unemployment rate. (?) in the inflation rate and in
4. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) n 0 0 > SR Philips Curve 6 12 UNEMPLOYMENT RATE (Percent) 15 SR Phillips Curve
4. Monetary policy and the Phillips curve The following graph shows the current short-run Phillips curve for a hypothetical economy; the point on the graph shows the initial unemployment rate and inflation rate. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. 6 SR Phillips Curve SR Phillips Curve 1 4. 6. 8 10 12 UNEMPLOYMENT RATE (Percent) 4. 2) INFLATION RATE (Percent)
Let's assume that in our economy money supply is $15 billion, Velocity (V) is 5, and Output (Y) is $70 billlion in 2019. The base year is 2018. A. Calculate the price level (P) in this economy. B. What can you say about about inflation rate between 2018 and 2019. C. Calculate the money supply in this economy if we want inflation to be zero (0). D. If in 2021 this economy grows by 10% and money supply increases by 15%, what would be the inflation rate? Fo
8. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to decrease the money supply. On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 5 2 INFLATION RATE (Percent) 1 0 6 5 0 1 0 3 In the short run, an unexpected decrease in the money supply results in unemployment rate. 0 9 6 12 UNEMPLOYMENT RATE (Percent) 3 SR Phillips Curve On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the long-run effects of the decrease in the money supply. O 6 UNEMPLOYMENT RATE (Percent) 9 15 12 18 15 In…
29) An inflation rate targeting rule A) reduces uncertainty about monetary policy. means that the inflation rate must exceed 5 percent in order for the rule to be effective. nas been adopted the by the Fed in response to the financial crisis of 2008-2009. D) will not work if the Fed continues to sue open market operations. 30) "As the Fed Chases Inflation, Critics Shout, 'Faster!" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "..the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." www.nytimes, 7/1/2004 Economists estimate that if the Fed's policy was enacted in…
8. Monetary policy and the Phillips curve The following graph plots the short-run Phillips curve for a hypothetical economy. The given point on the graph indicates the initial rates of unemployment and inflation. Assume that the economy is currently in long-run equilibrium. Suppose the central bank of the hypothetical economy decides to increase the money supply, On the following graph, shift the curve or drag the blue point along the curve, or do both, to show the short-run effects of this policy. Hint: You may assume that the central bank's move was unanticipated. INFLATION RATE (Percent) 5 2 SR Phillips Curve 9 6 12 UNEMPLOYMENT RATE (Percent) 15 18 SR Phillips Curve ?
Now, suppose the economy is back in long-run equilibrium, and then the price of imported oil rises. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the increase in the price of oil. nflation Rate L SRPC LRPC O True O False Unemployment Rate SRPC O Short-Run Effect LRPC True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate but the unemployment rate will be higher. (?)
Which is of the following is not a belief of monetarists? a.In the long-run, inflation is always a monetary phenomenon b.In the short-run, Fiscal policy is a better instrument of stabilization policy than monetary policy c.In the short-run, velocity is stable d.In the long-run, a ten percent increase in the money supply results in a ten percent increase in prices Early Keynesian thinks that money is less important because a.High interest elasticity of investment b.People have less incentive to buy bonds c.Fiscal Policy is more effective as it is determined by the politicians d.High interest elasticity of money demand If a country’s policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate the long-run result would be? a.All of these answers b.A decrease in the unemployment rate c.An increase in the level of output d.An increase in the rate of inflation The original Phillips curve…
3. The long-run effects of monetary policy The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregate supply (URAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). (?) PRICE LEVEL INFLATION RATE 0 2 3 4 OUTPUT (Trofdara) 9 UNEMPLOYMENT HATE (P) AD SHPC AD - The long-run effect of the central bank's policy is in real GDP LHAS SHPC LAPC (?) Which of the following statements are true based on these graphs? Check all that apply. The natural level of output is $6 trillion. The current quantity of output is greater than potential output. The unemployment rate is currently 9% higher than the natural rate of unemployment. Suppose the central bank of the economy pursues a policy that increases the money supply. Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves. in the inflation rate, in the unemployment…
1. The central Bank announces that it expects inflation to be relatively low while unemployment rises in the following months. What you be an expected monetary policy action as a result of this forecast? a. increase government spending b. decrease the discount rate c. increase the reserve ration d. sell bonds on the open market e. decrease marginal income tax rates 2. The long-run Phillips Curve indicates that there is no relationship between inflation and unemployment in the long run. Therefore, which of the following would cause an increase in the natural rate of unemployment and shift the LRPC to the right? a. An increase in unemployment benefits for the long-term unemployed. b. The elimination of various social welfare programs. c. A decrease in the duration of unemployment d. An increase in core inflation rates e. Expansionary monetary policies