10) How does the natural rate hypothesis relate to the AS-AD model?
Skill: Level 5: Critical thinking
Section: Checkpoint 15.2
Status: Old
AACSB: Written and oral communication
11) Suppose the natural unemployment rate is 4 percent and the expected inlation rate is
6 percent. In the igure below, illustrate the long-run Phillips curve. What does the long-run
Phillips curve reveal abut the long-run tradeof between inlation and unemployment?
68
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
69
12) In the above igure, what factor might have caused the shift in the short-run Phillips
curve from SRPC1 to SRPC2?
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
70
13) In the igure below, draw a short-run Phillips curve and a long-run Phillips curve if the
expected inlation rate is 4 percent and the natural unemployment rate is 6 percent.
Explain how the two change in the short run if:
a. slower growth in aggregate demand causes a recession.
b. the inlation rate increases.
c. the natural unemployment rate increases.
Skill: Level 3: Using models
Section: Checkpoint 15.2
Status: Old
AACSB: Analytical thinking
71
15.8 Essay: Inluencing Inlation and Unemployment
1) What do people base their expected inlation rate upon?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Written and oral communication
2) How does the expected inlation rate afect the short-run Phillips curve tradeof between
inlation and unemployment?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Written and oral communication
3) If the Fed increases the inlation rate in the short run before people’s expected inlation
changes, what occurs? What happens in the long run?
Skill: Level 3: Using models
Section: Checkpoint 15.3
Status: Old
AACSB: Written and oral communication
72
4) Discuss the efects of an unexpected decrease in the inlation rate policy on
unemployment in the short run. If the reduction in inlation is permanent, what happens in
the long run?
Skill: Level 2: Using deinitions
Section: Checkpoint 15.3
Status: Old
AACSB: Written and oral communication
73