786 PART TWELVE SHORT-RUN ECONOMIC FLUCTUATIONS 1. Suppose the natural rate of unemployment is 6 percent. On one graph, draw two Phillips curves that can be used to describe the four situations listed below. Label the point that shows the position of the economy in each case: a. Actual inflation is 5 percent and expected inflation is 3 percent. b. Actual inflation is 3 percent and expected inflation is 5 percent. c. Actual inflation is 5 percent and expected inflation is 5 percent. d. Actual inflation is 3 percent and expected inflation is 3 percent. 2. Illustrate the effects of the following developments on both the short-run and long-run Phillips curves. Give the economic reasoning underlying your answers. a. a rise in the natural rate of unemployment b. a decline in the price of imported oil c. a rise in government spending d. a decline in expected inflation 3. Suppose that a fall in consumer spending causes a recession. a.
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