Consider an economy that begins with output at its potential level and a relatively high inflation rate of 6%, reflecting some recent oil price shocks. As the head of the Federal Reserve, your job is to pick a sequence of
(a) According to these numbers, what is the slope of the Phillips curve?
(b) If you as a policymaker cared primarily about output and not much about the inflation rate, which option would you recommend? Why?
(c) If you cared primarily about inflation and not much about output, which option would you recommend? Why?
(d) Explain the general trade-off that policymakers are faced with according to the Phillips curve.
-Short-run output Year 1 -6% -4% 2% Year 1 3% 4% 5% -Inflation- Year 2 3% 3% 490 Year 3 3% 3% 3% Option Year 2 Year 3 2% -2% -2%
This problem has been solved!
- Tutor Answer
a The slope is 1 2 For each option in year 1 for every two percentage point decrease in the change i…View the full answer
Students also viewed these Economics questions