Now that we have learned that the Short-Run Phillips Curve (SRPC) shows the tradeoff between inflation and unemployment at the given natural unemployment rate and expected inflation rate, discuss which is worse, too much inflation or too much unemployment. Please apply the effects of the SRPC as explained in the textbook when sharing your discussion.

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Jarrod RobelLv2

10 Apr 2018

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8) What can be concluded from Milton Friedman and Edmund Phelps' expectations-augmented Phillips curve?

A) that there is no long run tradeoff between unemployment and inflation

B) that there is a short run tradeoff between unemployment and inflation

C) that there are two types of Phillips curves

D) all of the above

E) none of the above

9) Given the accelerationist Phillips curve ?? = - 0.3 (U - 6) + ?, suppose that inflation in the preceding period was 3 percent, unemployment is 6 percent, and there is a price shock of 2 percent. The current inflation rate is ________.

A) 3 percent

B) 0.2 percent

C) 5 percent

D) 1 percent

E) none of the above

10) Which of the following shows a negative relationship between the output and unemployment gaps?

A) the AS curve

B) the Phillips curve

C) Okun's law

D) the classical dichotomy

E) none of the above

The above graph depicts the short-run and long-run Phillips Curves for a hypothetical economy in macroeconomic equilibrium at point A, where the natural rate of unemployment is 4% and the current inflation rate is 10% per year.

Suppose that the central bank in this economy is concerned that the inflation is too high, and wants to lower the inflation rate by 4 percentage points per year. A reduction in the rate of inflation is called _____. To reduce inflation from 10% to 6% in the short-run, the central bank would have to accept an unemployment rate of _%

True or false: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve.

lilacprairie-dog904

Participate in a discussion with your classmates regarding natural unemployment. Review the Eye on Your Life caption titled, Natural Unemployment, on page 207 in the textbook. Now that we have learned that potential GDP is the value of real GDP when all the economy's factors of production - labor, capital, land, and entrepreneurial ability - are fully employed, discuss how these factors render natural unemployment as productive when considering potential GDP. Please apply the production function and labor market concepts as explained in the textbook when sharing your discussion.