The following graph plots the short-run and long-run Phillips curves (SRPC and LRPC, respectively) for an economy currently experiencing long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the inflation rate is 8% per year. Suppose that the central bank for this economy has decided that inflation is too high and thus wants to decrease the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as   (deflation/disinflation) . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of____% True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve. -True   -False

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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The following graph plots the short-run and long-run Phillips curves (SRPC and LRPC, respectively) for an economy currently experiencing long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the inflation rate is 8% per year.

Suppose that the central bank for this economy has decided that inflation is too high and thus wants to decrease the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as   (deflation/disinflation) . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of____%

True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve.
-True
 
-False
 
.
INFLATION RATE (Percent)
20
18
16
14
12
9
∞
4
2
0
0
1
+
2
+ +
3
4
LRPC
Y-Intercept: None
5
A
6
7
UNEMPLOYMENT RATE (Percent)
8
9
SRPC
10
?
Transcribed Image Text:INFLATION RATE (Percent) 20 18 16 14 12 9 ∞ 4 2 0 0 1 + 2 + + 3 4 LRPC Y-Intercept: None 5 A 6 7 UNEMPLOYMENT RATE (Percent) 8 9 SRPC 10 ?
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