Author Question: Compare and contrast the shapes of the short-run and long-run Phillips ... (Read 70 times)

jhjkgdfhk · **on:** Jun 30, 2018

Compare and contrast the shapes of the short-run and long-run Phillips curves.

Question 2

Globalization had to be put into effect to revive developed economies after the financial crises of the 1990s.
a. True
b. False
Indicate whether the statement is true or false

s.meritte · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The short-run Phillips curve is downward sloping, showing that attempting to reduce unemployment carries a price: higher inflation. The short-run curve traces out points as aggregate demand shifts and intersects aggregate supply at different points. An increase in AD results in lower unemployment but higher inflation. The long-run Phillips curve is vertical, implying that the economy tends toward full employment regardless of the price level. The long-run curve reflects built-in stability of the economy. Taking the case of an increase in AD, the higher price level leads to higher wages, thus decreasing short-run AS. The long-term effect of an increase in AD is a higher price level associated with the natural rate of unemployment.

Answer to Question 2

False