Question

Let the US economy be characterized by low aggregate output and low and stable inflation. Then, provide a clear definition of the Phillips Curve and consider whether this initial state is consistent with what is shown by this empirical relationship. Conclude by discussing under what conditions expansionary fiscal and monetary could lead to demand-pull inflation. How is economic growth impacted?

Answer 1

. The US economy is characterized by Low aggregate output and low and stable inflation.
It means the US economy is working on the concept of stable inflation it means there is no fluctuation in the price and there is no fluctuation in the monetary values of the product in the economy.
It provides a clear definition of the Phillips curve where the inflation and unemployment are inversely related and stable. It means when there is a rise in the inflation rate then the rate of unemployment will decrease and when there is a fall in the inflation rate then the rate of unemployment will increase.
The expansionary fiscal and monetary policies could lead to demand-pull inflation and it impacted the economic growth here the fiscal policy includes the change in the taxation system and the government expenditure for the purpose of control of demand-pull inflation in the economy and the economic growth is directly related to the condition of development of each and every sector and the increase of productivity in the economy.
All types of conditions under the monetary policies are also very effective like the change in the bank rate, the change in the cash reserve ratio and the change in the statutory liquidity ratio.
The change in the policy of open market operations also helped in the stable inflationary situation in the economy.