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d) What happens to the unemployment rate in the short run? What happens to it in the medium run? Explain your answer briefly. Chapter 8: Inflation and Unemployment 1) Explain what is meant by the "wage-price" spiral. 2) Based on the original Phillips curve, explain what effect a decrease in the unemployment rate will have on the inflation rate. What are the implications of this empirical relationship for policy?
3) Why did the original Phillips curve break down? What empirical relationship replaced the original Phillips Curve and why? –