What are the reasons for an observed relationship between inflation and unemployment in the long run...

What are the reasons for an observed relationship between inflation and unemployment in the long run having a upward sloping line instead of a vertical line as in the long run Philip's curve ?

Expert Solution

Rahul Sunny answered 2 years ago

Assuming that there is no long-run relationship between the inflation rate and unemployment. If this is...

Assuming that there is no long-run relationship between the inflation rate and unemployment. If this is true, then why is it that people pay such close attention to every move made by the Fed?

(1)There is no long-run tradeoff between inflation and unemployment because

(1)There is no long-run tradeoff between inflation and unemployment because A inflation always returns to the baseline level. B real GDP always returns to potential GDP. C potential GDP declines as the inflation rate raises. D the aggregate demand curve always shifts back to its baseline position. (2)The “Goldilocks economy” refers to a situation in which (Check all correct answers.) A inflation is lower than the target rate.B inflation is equal to the target rate.C real GDP is equal...

The short-run Phillips curve is the negative short-run relationship between the unemployment rate and the inflation...

The short-run Phillips curve is the negative short-run relationship between the unemployment rate and the inflation rate. Suppose the Phillips curve is given by ?t = ?e + 0.2 – 5ut where ?e= ? ?t-1. In this context ? is the actual inflation rate, ?e is the expected inflation rate and ? is a parameter indicating the relative speed of adjustment of expected inflation to actual inflation. Explain to the best of your abilities, the following questions. a) Explain the difference between...

Explain the following : Short run tradeoff (negative relationship) between unemployment & inflation. policy is not...

Explain the following : Short run tradeoff (negative relationship) between unemployment & inflation. policy is not efficient in the LR. Money supply curve is vertical. Expenditure multiplier + Tax multiplier = 1.

Describe the long-run relationship between money growth and inflation. How does the long-run growth of income...

Describe the long-run relationship between money growth and inflation. How does the long-run growth of income affect this relationship? Use the Fisher equation to describe the long-run relationship between money growth and nominal interest rates.

Many economists argue as follows: “because there is no long-run tradeoff between unemployment and inflation, there...

Many economists argue as follows: “because there is no long-run tradeoff between unemployment and inflation, there is no point in trying to shave the peaks and troughs from the business cycle.” This view suggests that we should not care whether the economy is stable or fluctuating widely as long as the average level of unemployment is the same. Discuss

What effect will a reduction in inflation have on unemployment in the Long Run? Explain how...

What effect will a reduction in inflation have on unemployment in the Long Run? Explain how you would know this. (hint: think of a particular economic concept/graph that explains this). Answer: (circle the correct answer) Unemployment will go up Unemployment will go down Unemployment will not change Explanation:

Assume that the economy is at a long-run equilibrium, with unemployment at 5%, and inflation at...

Assume that the economy is at a long-run equilibrium, with unemployment at 5%, and inflation at 2% pa. Suppose a shock causes a very large increase in the cost of crude oil and gas. Assume that Ireland does not produce any oil or gas, and imports large amounts of oil and gas. The shock causes unemployment to rise to 9%, and inflation to rise to 4% pa. Using the data, write out the equation of the Phillips curve before, during,...

Explain only 3 of the following: Short run tradeoff (negative relationship) between unemployment & inflation. Expenditure...

Explain only 3 of the following: Short run tradeoff (negative relationship) between unemployment & inflation. Expenditure multiplier + Tax multiplier = 1. Money supply curve is vertical. policy is not efficient in the LR.

What determines the inflation rate in the long run? How might inflation in the long run...

What determines the inflation rate in the long run? How might inflation in the long run be related to fiscal policy? What is seigniorage?

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