Answered: 1) According to the Phillips Curve, as…

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

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1) According to the Phillips Curve, as unemployment falls what happens to inflation? Why?

2) According to the Phillips Curve, as unemployment rises what happents to inflaiton? Why?

3) According to the Aggregate Supply/ Aggrgeate Demand model, if AD increases what happebs to Price Level GDP and Unemployment

4) Accroding to the AS/AD model, if AD decreases what happens to PL, GDP and unemployment?

5) According to the AS/AD model if AS decreases what happens to PL GDP and unemployment?

6) Based on your answer to #5 how would you show the decrease in AS on the Philips Curve?

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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