Question

Suppose the Bank of Canada unexpectedly raises the inflation target from 2% to 5%. Using the...

Suppose the Bank of Canada unexpectedly raises the inflation target from 2% to 5%. Using the Phillips Curve diagram, explain how this would affect the unemployment rate, in the short run and in the long run.

NO HANDWRITINGS PLEASE. I CAN'T READ MOST OF THE HANDWRITINGS, UNFORTUNATELY. THANKS IN ADVANCE FOR TYPING ANSWERS

Homework Answers

Answer #1

suppose we know that the  intilay the economy is at point F where inflation = 2% and also the unemployment = OE1. According to Philips curve in an economics we know that the there exists a trade off of inflation and unemployment are increase rapidily. the  inflation targeted to from 2% to 5% would be the cause the economy to move from point F to point B on PC1(SR) in the short run (SR). .At an point B , inflation = 5% and unemployment has been fallen to OE2.

In the log run the Philips curve can be  shift from PC1(SR) to PC2(SR) such that the economy will reaches to point C on the long run Philips curve which is to be vertical at the natural rate of unemployment . At point C , inflation rate = 5% and unemployment returns to its natural rate = OE1.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that the Bank of Canada unexpectedly decreases the money supply. What will happen to unemployment...
Suppose that the Bank of Canada unexpectedly decreases the money supply. What will happen to unemployment in the short run? What will happen to unemployment in the long run?
Eurozone unemployment rose to 10.7 percent. At the same? time, Eurozone inflation unexpectedly rose to 2.7...
Eurozone unemployment rose to 10.7 percent. At the same? time, Eurozone inflation unexpectedly rose to 2.7 percent a?year, up from the previous? month's 2.6 percent a year. ?Source: Huffington Post?, March? 1, 2012 A very high unemployment rate can be accounted for by the Phillips curve model by all of the following except?_______. A. a movement down along the? short-run Phillips curve if there is no change in the natural unemployment rate B. a rightward shift of the? long-run Phillips...
Suppose the short run Phillips Curve is given by: Inflation = Expected Inflation +.2 -4*Unemployment Rate...
Suppose the short run Phillips Curve is given by: Inflation = Expected Inflation +.2 -4*Unemployment Rate        Assume that initially, people expect zero inflation. Draw the short run Phillips Curve and the long run Phillips Curve on a graph On the graph, represent what would happen in the short run if the government decided to run 4% inflation (setting inflation =0.04). On the graph, represent what would happen in the long run if the government decided to run 4% inflation.
Suppose that an economy has the Phillips Curve If the economy has the Non-Accelerating Inflation Rate...
Suppose that an economy has the Phillips Curve If the economy has the Non-Accelerating Inflation Rate of Unemployment as 5%, demonstrate in the Phillips Curve figure the short-run and long-run values on inflation and unemployment. Make sure to include specific numerical values.
he ultimate objective of the Bank of Canada is to target an inflation rate between 1...
he ultimate objective of the Bank of Canada is to target an inflation rate between 1 and 3 percent, aiming for the middle of the band that is 2 percent. Suppose that inflation is expected to go above 2 percent, the central bank will react by changing the target for the overnight rate. Will the Bank increase or decrease the target for overnight interest rate? Changes in the interest rate affect various kinds of economic activity and thereby, over time,...
Suppose that in 2020, the natural rate of unemployment is 5% and the actual rate of...
Suppose that in 2020, the natural rate of unemployment is 5% and the actual rate of unemployment is also 5%. Also inflation equals 4% and people expect inflation to be 4% next year (and all years thereafter). Using the Phillips curve logic, suddenly there is a rise in aggregate demand (maybe due to a jump in investment or government spending, maybe a tax cut.) A. in the short run by 2021, what happens to inflation and unemployment ? Explain why...
Suppose that the natural rate of unemployment equals 6%, and the public expect inflation to equal...
Suppose that the natural rate of unemployment equals 6%, and the public expect inflation to equal 4 %, and the coefficient a in PC equation = 0.4. What is the unemployment rate when the actual inflation equals 2%? What if the actual inflation rate equals 10%? During the 1990s, we observed the co-existence of low inflation and low unemployment. One of the arguments given by macroeconomists is that the expected inflation was lower than usual during the 1990s. Suppose now...
30. Suppose that the natural rate of unemployment equals 6%, and the public expect inflation to...
30. Suppose that the natural rate of unemployment equals 6%, and the public expect inflation to equal 4 %, and the coefficient a in PC equation = 0.4. a. What is the unemployment rate when the actual inflation equals 2%? What if the actual inflation rate equals 10%? b. During the 1990s, we observed the co-existence of low inflation and low unemployment. One of the arguments given by macroeconomists is that the expected inflation was lower than usual during the...
According to classical macroeconomic theory, changes in the money supply affect nominal variables and real variables....
According to classical macroeconomic theory, changes in the money supply affect nominal variables and real variables. nominal variables, but not real variables. real variables, but not nominal variables. neither nominal nor real variables. The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is more profitable and employment rises. production is more profitable and employment falls. production is less profitable and employment rises. production is less profitable and employment falls....
explain clearly the rationale behind your numerical answers. a. suppose the multiplier is 1.5, the income...
explain clearly the rationale behind your numerical answers. a. suppose the multiplier is 1.5, the income multiplier with respect to the money supply is 2, the money multiplier is 4.5, and a central bank purchase of $6b of bonds during a recession drops the interest rate by one percentage point. suppose that to fight a recession, monetary policy is undertaken to lower the interest rate by two-thirds of a percentage point. what should happen to the income level? b.suppose the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT