4. The costs of inflation and of combating inflation The following graph shows a short-run Phillips...

4. The costs of inflation and of combating inflation

The following graph shows a short-run Phillips curve for a hypothetical economy.

Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position.

SRPC01234561211109876543210INFLATION RATE (Percent)UNEMPLOYMENT (Percent)SRPC

Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve (LRPC), or both.

SRPCLRPC01234561211109876543210INFLATION RATE (Percent)UNEMPLOYMENT (Percent)SRPC LRPC

As expected, inflation and the short-run Phillips curve shifts , illustrating that the cost of fighting inflation is .

Which of the following is an example of a cost of inflation? Check all that apply.

An unintended redistribution of wealth from lenders to borrowers

Stable relative prices

A restaurant's costs to reprint its menu to reflect fluctuating prices

A general increase in purchasing power

Expert Solution

Rahul Sunny answered 2 years ago

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