Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated
Question:
Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. In a country such as Japan, which has had very little inflation in recent memory, it will take longer for a change in the actual inflation rate to be reflected in a corresponding change in the expected inflation rate. In contrast, in a country such as Zimbabwe, which has recently had very high inflation, a change in the actual inflation rate will immediately be reflected in a corresponding change in the expected inflation rate. What does this imply about the short-run and long-run Phillips curves in these two types of countries? What does this imply about the effectiveness of monetary and fiscal policy to reduce the unemployment rate?
Step by Step Answer:
Macroeconomics
ISBN: 978-1319120054
3rd Canadian edition
Authors: Paul Krugman, Robin Wells, Iris Au, Jack Parkinson