A change m expected inflation shifts the long-run Phillips curve, but not the sh

Question

A change m expected inflation shifts the long-run Phillips curve, but not the short run Phillips curve. the short-run Phillips curve, but not the long run Phillips curse. Bother the short-run nor the long-run Phillips curse. both the short-run and long-run Phillips curve right. The analysis of Friedman and Phelps can be summarized in the following equation where a is positive number Unemployment Rate = Actual Rate of Inflation - o(Actual Unemployment - Expected Unemployment). Unemployment Rate = Natural Rate of Unemployment - of Ex peeled Inflation - Actual Inflation). Unemployment Rate = Expected Rate of Inflation - a(Actual Inflation - Expected Inflation). Unemployment Rate = Natural Rate of Unemployment - o(Actual Inflation - Expected Inflation). The equation. Unemployment rate = Natural rate of unemployment - a times (Actual inflation - Expected inflation). is the equation of the short-run Phillips curve. implies there can be no stable short-run Phillips curve. All of the choices are correct. reflects the reasoning of Friedman and Phelps. In the long run, a decrease in the money supply growth rate shifts both the long-run and the short-run Phillips curves right. shifts the long-run Phillips curve left and the short-run Phillips curve right. None of the answers are correct. shifts the long-run Phillips curve right and the short-run Phillips curve left. In the long run a reduction in the money supply growth rate affects the inflation rate and the natural rate of unemployment. the inflation rate but not the natural rate of unemployment. neither the inflation rate nor the natural rate of unemployment the natural rate of unemployment but not the inflation rate. If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is above its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment. above its natural rate. The short-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment. below its natural rate. The short-nm Phillips curve shifts right as the economy moves back to its natural rate of unemployment. below its natural rate. The long-run Phillips curve shifts left as the economy moves back to its natural rate of unemployment.

Explanation / Answer

18.

Inflationary expectations are the expectations that consumers have concerning future inflation. Inflationary expectations work for aggregate demand much like buyers' expectations work for market demand. Buyers seek to purchase a good at the lowest possible price.

The relation that exists between price expectations and market demand also applies to inflationary expectations and aggregate demand.

Sol:- A

19.

Sol :- C) Expected rate of inflation

20.

Sol:- d) Reflects reasoning

21.

Sol:- d) the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.

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