ECO14 - 1 The Phillips curve for the United States in the...

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1.The Phillips curve for the United States in the 1960s becomes very steep after unemployment drops below 4%, and rather shallow as unemployment exceeds 6%. Why is a typical Phillips curve shaped this way? 2. Does the long-run Phillips curve make it difficult (if not impossible) for policymakers to increase output and employment beyond full employment in the long run. #2. Policy makers would be willing to use expansionary policy to reduce un-employment just like the Phillips curve suggests. These policies assume the inflation expectations will adjust with a noticeable lag allowing some tradeoff between inflation and unemployment. 3. Explain why inflation accelerates if policymakers use monetary and fiscal policy to keep unemployment below the natural rate.

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