According to the Phillips curve relation, what occurs when the unemployment rate falls below the natural rate of unemployment?
Why
Tap an answer. The explanation will appear here, including why each wrong option is wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Not quite. A is correct.
The Phillips curve shows that when the actual unemployment rate is below the natural rate, wage and price pressures push actual inflation above expected inflation (π - π^{e} > 0).
Tap any option to see why it's right or wrong.
Your progress
Chapter 9: not started.
In the standard formulation of the IS-LM-PC model, which of the following variables does investment NOT depend on directly?
Why
Tap an answer. The explanation will appear here, including why each wrong option is wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
In the standard IS relation, investment is modeled as I(Y, r + x), depending directly on output, the policy rate, and the risk premium, but not directly on taxes.
Tap any option to see why it's right or wrong.
Your progress
Chapter 9: not started.
Using the IS-LM-PC model, explain how the economy adjusts to an increase in taxes in both the short run and the medium run.
Why
Write your answer, then tap Show model answer. The model answer and marking points will appear here.
Compare with your answer.
Model answer. In the short run, an increase in taxes reduces disposable income, lowering consumption and shifting the IS curve inward to the left. With the central bank initially holding the policy interest rate constant on the LM line, output decreases below its potential level (Y < Y_{n}). On the Phillips curve (PC) diagram, this negative output gap leads to a decrease in inflation below expectations.
In the medium run, observing that inflation is below target, the central bank reduces the policy rate, shifting the LM curve downward. Lower interest rates stimulate private investment, moving the economy down along the new IS curve. The central bank continues lowering rates until output returns to potential (Y = Y_{n}) and inflation stabilizes. In the medium-run equilibrium, output is back at potential, the policy interest rate is lower, consumption is lower (due to higher taxes), and investment is higher (due to lower interest rates).
- Short-run IS shift: Explains that higher taxes reduce disposable income and consumption, shifting the IS curve to the left.
- Short-run output and inflation: States that output falls below potential (Y < Y_{n}) and inflation falls below target along the Phillips curve.
- Medium-run monetary response: Explains that the central bank cuts the policy rate in response to low inflation, shifting the LM curve down.
- Medium-run equilibrium: Notes that output returns to potential (Y = Y_{n}), the interest rate is lower, consumption remains lower, and investment increases.
Your progress
Chapter 9: not started.