hoice that best completes the stateman o xhibit 16- nfistion rate () Long-u Phit

Question

hoice that best completes the stateman o xhibit 16- nfistion rate () Long-u Phittigs oar 0 2 4 6 83 16. In Exhibit 16-3, if the econonmy sates ea in, econony Matted sear h point ay b. point e ae economy in the economy inthe shortrun tomovedtearparth, c. point c point d In Exhibit 16-3, the natural rade of unenployment a. 2 percent because it occurs a thie inenection o b. 4 percent because it is the midpoins of the th c. 4 percent because it is on the long-nuin cuve d. 8 percent because it is the most the econoy ce i i Along the long-run Phillips curve, a· the economy is at an unemployment level that compondstote--id b. expectations have not fully adjusted c. policy makers can have lower inflation conly with higher smemployment d. a cut in taxes will lower inflation 19 .

Explanation / Answer

question 16 is bit blurred. I assume it is asking about the impact of government spending on unemployment-inflation relation. If government spending increases it increases the aggregate demand in the short-run which which would lead to increase in employment and increase in inflation rate. So the end result will be increase in inflation and decrease in unemployment. The expected move would be toward point c. The correct answer should be (C).

17. The natural rate of unemployment corresponds to long-run Phillips curve, beyound which unemployment rate cannot be reduced in the long-run. The correct answer should be (C)

18 Corresponding to lung-run Phillips curve, all the resources in the economy is assumed to be fully utilized. Hence the correct answer should be (A)

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