Suppose the current inflation rate and the expected inflation rate are both 4 percent. The current unemployment
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Suppose the current inflation rate and the expected inflation rate are both 4 percent. The current unemployment rate and the natural rate of unemployment are both 5 percent. Use a Phillips curve graph to show the effect of a supply shock. If the Federal Reserve keeps monetary policy unchanged, what will happen eventually to the unemployment rate? Show this change on your Phillips curve graph.
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The negative supply shock will shift the shortrun Phillips curve up as both the actual i...View the full answer
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