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Please read Sections 17.1-17.2 of the HO textbook on the Phillips Curve before addressing the questions below. Based on the Phillips Curve, how might a
Please read Sections 17.1-17.2 of the HO textbook on the Phillips Curve before addressing the questions below.
- Based on the Phillips Curve, how might a collapse in employment, as seen in 2020 due to COVID-19, be expected to impact inflation in the U.S.?
- Cost-push inflationis an increase in the price level (consumer inflation) that results from increased input costs faced by producers. There was a cost-push element of the inflation of the 70's as higher energy prices were reflected in the price of final goods. There was concern about cost-push (wage-push) inflation in the 90s as the unemployment rate sunk to historically low levels and wages increased sharply. Provide at least one reason why we might worry about cost-push inflation in an economy suffering from a COVID-type downturn and at least one reason that works against cost-push inflation in such an economy.
- Demand-pull inflation is an increase in the price level (consumer inflation) that results from short-run aggregate supply not keeping up with aggregate demand. In the modern high-income economy, this has been the typical state of things. Provide at least one reason why we might worry about demand-pull inflation in the COVID economy and at least one reason why we might not.
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