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Using what you know about the Phillips curve, determine whether the following quantities will increase, decrease, or remain the same. a. Unemployment in the short run after an increase in inflation: (Click to select) Remain the same Increase Decrease . b. Unemployment in the long run after an increase in inflation: (Click to select) Increase Decrease Remain the same . c. Inflation in the short run after a decrease in unemployment: (Click to select) Decrease Remain the same Increase . d. Inflation in the long run after a decrease in unemployment: (Click to select) Increase Remain the same Decrease .

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Final answer:

Unemployment remains the same in the short run after an increase in inflation and increases in the long run. Inflation remains the same in the short run after a decrease in unemployment and decreases in the long run.

Step-by-step explanation:

a. Unemployment in the short run after an increase in inflation: Remain the same

b. Unemployment in the long run after an increase in inflation: Increase

c. Inflation in the short run after a decrease in unemployment: Remain the same

d. Inflation in the long run after a decrease in unemployment: Decrease

User Umar Farooque
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a. Unemployment in the short run after an increase in inflation: Increase

b. Unemployment in the long run after an increase in inflation: Remain the same

c. Inflation in the short run after a decrease in unemployment: Remain the same

d. Inflation in the long run after a decrease in unemployment: Decrease

The Phillips curve is a concept in economics that represents an inverse relationship between the rate of unemployment and the rate of inflation in an economy. According to this theory:

  • a. In the short run, after an increase in inflation, unemployment tends to decrease. This reflects the temporary trade-off between inflation and unemployment observed in the short-run Phillips curve.
  • b. However, in the long run, after an increase in inflation, unemployment will remain the same at the natural rate. This is because the long-run Phillips curve is vertical, indicating that the natural rate of unemployment is not affected by inflation in the long run.
  • c. In terms of inflation in the short run following a decrease in unemployment, inflation is expected to increase due to the inverse relationship depicted in the short-run Phillips curve.
  • d. For inflation in the long run after a decrease in unemployment, inflation will vary depending on other factors, but the natural rate of unemployment will not change because the long-run Phillips curve is vertical and does not reflect a trade-off between inflation and unemployment rates.

The statements from economists, particularly Milton Friedman, have contributed to the understanding that while the trade-off between inflation and unemployment is observed in the short term, in the long run, the unemployment rate is determined by structural factors, not by inflation. Therefore, the long-run Phillips curve is a representation of the natural rate of unemployment consistent with various levels of inflation.

User Varevarao
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