Author Question: If workers accurately predict the rate of inflation, is there a short-run trade-off between ... (Read 125 times)

strangeaffliction · **on:** Jun 29, 2018

If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not?

What will be an ideal response?

Question 2

What is the difference between federal purchases and federal expenditures?

What will be an ideal response?

kthug · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If workers accurately predict the rate of inflation, then they will incorporate wage adjustments into their contracts that will take inflation into account. The result is no change in the real wage, and no change in the unemployment rate, indicating that there is no trade-off between inflation and unemployment. Instead, the Phillips curve would be vertical.

Answer to Question 2

Federal purchases refer to federal spending where the federal government receives a good or service in return, like an aircraft carrier. Federal expenditures include federal purchases plus interest on the national debt, grants to state and local governments, and transfer payments.