Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 11: Q. 5 LO (page 232)

Determine the causes of short-run variations in the inflation rate

Short Answer

Expert verified

Variations in expected inflation are what causes the short-run Phillips curve to evolve.

Step by step solution

01

Definition for short run

The short run is a notion that states that at least one input is fixed while the others are variable during a given amount of time in the future.

It expresses the idea that an economy behaves differently depending on how long it has to respond to particular inputs in economics.

02

Causes of short-run variations in the inflation rate 

Changes in inflation expectations are what causes the short-run Phillips curve to move.

Workers who are considered to be totally logical and informed will understand that their nominal wages have not kept up with inflation increases (the movement from point A to point B), resulting in a fall in their real pay.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Consider Figure 11-3. Will all people who desire to work be employed if the current wage rate is $28per hour? How many people will be employed and unemployed at this wage rate?

Describe the short-run determination of equilibrium real GDP and the price level in the classical model

For each question that follows, suppose that the economy begins at point A. Identify which of the other points on the diagram-point B, C, D, or E-could represent a new short-run equilibrium after the described events take place and move the economy away from point A. Briefly explain your answers.

a. Most workers in this nation's economy are union members, and unions have successfully negotiated large wage boosts. At the same time, economic conditions suddenly worsen abroad, reducing real GDP and disposable income in other nations of the world.

b. A major hurricane has caused short-term halts in production at many firms and created major bottlenecks in the distribution of goods and services that had been produced prior to the storm. At the same time, the nation's central bank has significantly pushed up the rate of growth of the nation's money supply.

c. A strengthening of the value of this nation's currency in terms of other countries' currencies affects both the SRAS curve and the AD curve.

Why do you suppose that the effects of the minimumwage-generated aggregate supply shock in Puerto Rico have persisted for several years? (Hint: The minimum wage persistently has exceeded market clearing wages for a significant fraction of the Puerto Rican labor force.)

Consider an open economy in which the aggregate supply curve slopes upward in the short run. Firms in this nation do not import raw materials or any other productive inputs from abroad, but foreign residents purchase many of the nation's goods and services. What is the most likely short run effect on this nation's economy if there is a significant downturn in economic activity in other nations around the world?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free