786PART TWELVESHORT-RUN ECONOMIC FLUCTUATIONS1.Suppose the natural rate of unemployment is 6 percent.On one graph, draw two Phillips curves that can beused to describe the four situations listed below. Labelthe point that shows the position of the economy in eachcase:a.Actual inflation is 5 percent and expected inflationis 3 percent.b.Actual inflation is 3 percent and expected inflationis 5 percent.c.Actual inflation is 5 percent and expected inflationis 5 percent.d.Actual inflation is 3 percent and expected inflationis 3 percent.2.Illustrate the effects of the following developments onboth the short-run and long-run Phillips curves. Givethe economic reasoning underlying your answers.a.a rise in the natural rate of unemploymentb.a decline in the price of imported oilc.a rise in government spendingd.a decline in expected inflation3.Suppose that a fall in consumer spending causes arecession.
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