Explain why the Phillips Curve is drawn to show a positive relationship between aggregate output and inflation, and why a move up the curve to an above- equilibrium output level may be followed by an upward shift of the whole curve.
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- . Explain how the original Phillips curve was transformed into the expectations augmented Phillips curve. Using the latter, describe why any expansionary policy would not be effective in the long run and move the macro-economy back to the Natural Rate of Unemployment (NRU).(a) What events of the 1970s and 1980s made economists believe that the shortrun relationship between inflation and unemployment was unstable (not fixed and permanent)? (b) Explain, using a diagram(s) and the concept of stagflation, the relationship between shifts in the SRAS curve and the position of the short-run Phillips curve.Inflation and unemployment data for Acadia can be found in the table below. Year 2018 2019 2020 ion Rate (%) 5 Inflation Rate (%) + 4.7 2.6 3.5 a. Draw a graph showing the Phillips curve for Acadia based on the values for inflation and unemployment in this economy from 2018 to 2020. Plot 3 points in total to draw the Phillips curve for Acadia below. Plot the plotting points in the order 2018, 2020 and then 2019. Unemployment Rate (%) Phillips Curve for Acadia 5.7 8.9 6.8 Tools Phillips Curve Ⓡ
- Explain why the Phillips Curve is drawn to show a positive relationship betweenaggregate output and inflation, and why a move up the curve to an aboveequilibrium output level may be followed by an upward shift of the whole curve) a. Draw a short run Phillips curve and show the slope of the curve and then explain what it implies for the policy makers?Answer the following questions briefly.a How is the Phillips curve related to aggregate supply?b. What are the differences between demand-pull inflation and cost-push inflation?c. On what market imperfection does each aggregate supply theory rely? What dothe theories have in common?
- 11. Changing the slope of the Phillips curve: Suppose the slope of the Phillips curve the parameter -increases. How would the results differ from the Inc Volcker disinflation example considered in the chapter? What kind of changes in the economy might influence the slope of the Phillips curve? onGiven the Phillips Curve model below, suppose the economy is in an inflationary gap. and policy-makers (Fed or President & Congress) decide to intervene. If policy-makers decide to intervene, what type of “policy” will they advocate? With the use of policy, the economy will move from point _____ to point _____.Suppose the economy is initially in macroeconomic equilibrium, with an output gap of 0%, unexpected inflation of 0%, and inflation expectations of 2%. A war in the Middle East disrupts oil supplies. a. Adjust the accompanying diagram to reflect this development. Set point A at the new combination of the output gap and unexpected inflation. so Unexpected inflation (%) -4 Ņ -6 -10 10 N 4 -5 A Phillips curve 5 10 Output gap (%)
- 39. Model the Phillips curve and explain what the curve means in terms of policy.What is the effect of an increase in aggregate demand on the short-run Phillips curve? When aggregate demand increases, _______. A. the short-run Phillips curve shifts upward B. the short-run Phillips curve shifts downward C. a movement occurs upward along the short-run Phillips curve D. a movement occurs downward along the short-run Phillips curveSuppose that a fall in consumer spending causes a recession. a. Illustrate the changes in the economy using both an aggregate supply/aggregate demand diagram and a Phillips curve diagram. What happens to inflation and unemployment in the short run? (5%) b. Now suppose that over time, expected inflation changes in the same direction that actual inflation changes. What happens to the position of the short-run Phillips curve? After the recession is over, does the economy face a better or worse set of inflation– unemployment combinations? (5%)