Question
Since the Great Recession, inflation seems to react significantly less to changes in the short-term output. This phenomenon is referred to as the flattening of
Since the Great Recession, inflation seems to react significantly less to changes in the short-term output. This phenomenon is referred to as the flattening of the Phillips curve. Consider the Phillips curve equation:pit = pite + vYt + o.
- What should change in the Phillips curve to mirror the "flattening of the Phillips curve?"
- Given your answer in a), how would the AS change?Hint: Think of the slope of the AS.
- Suppose the Federal Reserve decreases the Fed funds rate. What would change in the AS-AD framework?
- Consider the decline in the Fed funds rate in part c). Compare the new economic equilibrium when the Phillips curve is flatter with when it is steeper.
- In the case of a Phillips curve flattening, what could be the (potentially) better strategy for the Federal Reserve to affect inflation?
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Power And Plenty Trade, War, And The World Economy In The Second Millennium
Authors: R Findlay, Ronald Findlay
1st Edition
0691143277, 9780691143279
