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Chapter 25: Q. 14 (page 623)

Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?

Short Answer

Expert verified

The long-run Phillips Curve is descending inclining as a result of the compromise between inflation and joblessness.

Step by step solution

01

Definition of Philip curve

The Phillips Curve is the explanation that there is a connection amongst a business and inflation. The degree of relationship modifies over the long run. However, that doesn't reach out to causation.

02

Explanation

No, the Phillips curve does exist but generally over periods of times no more than 10 years. A downward-sloping Phillips curve should be analyzed as valid for a short-run duration of several years, but over longer spans鈥攚hen total supply changes鈥攖he downward-sloping Phillips curve can move so that unemployment and inflation are both higher.

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Most popular questions from this chapter

In the Keynesian framework, which of the following events might cause a recession? Which might cause

inflation? Sketch AD/AS diagrams to illustrate your answers.

a. A large increase in the price of the homes people own.

b. Rapid growth in the economy of a major trading partner.

c. The development of a major new technology offers profitable opportunities for business.

d. The interest rate rises.

e. The good imported from a major trading partner become much less expensive.

In its recent report, The Conference Board鈥檚 Global Economic Outlook 2015, updated November2014(http://www.conference-board.org/data/ globaloutlook.cfm), projects China鈥檚 growth between2015and 2019 to be about 5.5%. International Business Times (http://www.ibtimes.com/us-exports-china-havegrown-294-over-past-decade-1338693) reports that China is the United States鈥� third largest export market, with exports to China growing 294%over the last ten years. Explain what impact China has on the U.S. economy.

Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not

What may happen if growth in China continues or contracts?

What is the Keynesian prescription for recession? For inflation?
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