ps12ans - ECONOMICS 205: PRINICIPLES OF MACROECONOMICS FALL...

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ECONOMICS 205: PRINICIPLES OF MACROECONOMICS FALL 2008 MARK MOORE PROBLEM SET 12: SOLUTIONS 1. The AS curve slopes up, so fluctuations in the AD curve produce a positive correlation between price changes (inflation) and output changes. Higher output is associated with lower unemployment. 2. Adverse supply shocks shift the AS curve up, and shift the Phillips curve up. 3. When expected inflation increases, workers demand higher wage growth, so we get faster price growth, for any given rate of unemployment. As a result, the Phillips curve shifts up. 4. Basically, the Phillips curve (PC) moved around in the 1970s. There are two reasons: i. supply shocks (oil) shifted the PC (up when oil prices went up and down when oil prices went down); and ii. the first experience with significant inflation ( from about 4% in 1968 to14% by 1980) led to an increase in expected inflation, which also shifted the PC up. 5.
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This note was uploaded on 06/17/2009 for the course ECON 20091_ECO taught by Professor Mohammadsafarzadeh during the Fall '09 term at USC.

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ps12ans - ECONOMICS 205: PRINICIPLES OF MACROECONOMICS FALL...

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