Question

The following graph depicts the short-run and long-run Phillips curves (SRPC and LRPC) for a hypothetical economy in long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the current inflation rate is 8% per year.

Suppose that the central bank in this economy is concerned that inflation is too high and wants to lower the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as    . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of

.

True or False: If people have rational expectations, the sacrifice ratio could be much smaller than suggested by the short-run Phillips curve.

True

False

Answer 1

Blanks-

1-Disinflation

2-9%

The statement is True