Philliph Curve

Phillips Curve Practice ! Class work – April 15, 2014! ! ! ! ! ! Name:

Directions: On the graph below, place labels and values ranging from 0% to 10% on both the horizontal and vertical axes. For the scenarios described, draw a point on your graph and label it with the appropriate letter. correspond to the scenario it illustrates. If the scenario describes something that would shift the Phillips Curve, draw a new curve and label it with the appropriate letter. Some scenarios will lead to the same outcome as others; in these cases put multiple letters next to each point. Provide a brief explanation of why the scenario leads to the change you identified.

Scenarios! a. The economy is stable with unemployment at 6% and inflation at 2%. (For the following

scenarios, assume the economy starts at this point)!! b. A decrease in interests rats causes investment to increase.! ! Explain:!!!!! c. An appreciation of the nation’s currency leads foreigners to demand less of the country’s exports.! ! Explain:!!!!!! d. The discovery of large reserves of natural gas causes energy prices to decline. ! ! Explain:!!!!!! e. An earthquake strikes, destroying much of the nation’s transportation infrastructure.! ! Explain:!!!!!! f. Home prices decline, harming consumer and investor confidence.! ! Explain:!!!!!! g. The government reduces payroll taxes by 2% for all households.! ! Explain:!!

!! h. Fear over the national debt forces government to reduce its budget deficit.! ! Explain:!!!!!! i. The EPA requires all the nation’s producers to adhere to strict new greenhouse gas

emissions standards.! ! Explain:!!!!! j. Looser immigration laws increase the available supply of labor in the country.! ! Explain:!!!!! k. Rapid economic growth abroad boosts demand for the nation’s output.! ! Explain:!!!!! l. Create your own scenario: