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Author Question: Suppose the current inflation rate and the expected inflation rate are both 3 percent. The current ... (Read 149 times)

bio_gurl

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Question 1

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently, how can that goal be achieved, and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips curve in the short run and the long run.



Question 2

Suppose the current inflation rate and the expected inflation rate are both 3 percent. The current unemployment rate and the natural rate of unemployment are both 4 percent. Use a Phillips curve graph to show the effect on the economy of a severe supply shock. If the Federal Reserve keeps monetary policy unchanged, what will eventually happen to the unemployment rate? Show this on your Phillips curve graph.



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Marked as best answer by bio_gurl on Mar 16, 2019

vboyd24

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