Purchase Solution

Phillips curves and federal control of money supply

Not what you're looking for?

Ask Custom Question

1. What is a Phillips curve? Assuming the economy's aggregate supply curve is stable, how would an increase in aggregate demand affect the unemployment rate and the inflation rate?
2. Consider this statement: "Banks do not create money because this is the Fed's responsibility". Do you agree or disagree?
3. What are some problems faced by the Fed in controlling the money supply?

Purchase this Solution
Solution Summary

The solution explains what a Phillips curve is, how an increase in aggregate demand would affect the unemployment rate and inflation, and some problems that the federal government faces in controlling money supply.

Solution Preview

1. Phillips curve shows the empirical tradeoff between inflation and unemployment. Inflation tends to be low when unemployment is high and vice versa. This empirical relationship between inflation and unemployment was first discovered by Phillips in 1958 by examining 97 years British data. This tradeoff presents difficult and problematic political issues to policy makers. Inflation and unemployment are sometime called twin evils, because both are bad.

If the supply (AS) is stable, the economy is most likely running at a full capacity that is all resources in the economy are fully utilized. The output is at the ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Help with Multiple choice questions

    B) The authorities believe that there is no direct relationship between money supply and inflation. C) The government and the central bank have full control of its spending.

  • Demand for money

    How do active and passive views of these concepts differ? The short run Phillips curve is generated by the intersection of alternative aggregate demand curves along a given short-run aggregate supply curve.

  • Economics

    150550 Economics: Curves with an Inverse Relationship Which of the following curves show an inverse relationship between a nation's inflation and unemployment rates?

  • Phillips Curve

    demand curve rightward c. the short-run aggregate supply curve leftward d. the aggregate demand curve leftward e. both the aggregate demand and the short-run aggregate supply curves leftward By Phillips Curve, the unemployment rate is negatively

  • rate of money growth

    In fact, there is a family of short-run Phillips curves corresponding to different expected inflation rates; each curve is negatively sloped, implying that lower unemployment can be achieved in the short run.

  • Goals of US monetary policy and their consistency

    Then a decrease in price value will not shift the unemployment, and the two goals can be both achieved. To approach full employment the US monetary authorization, or the Federal Reserve have to increase money supply to incentive consumption.

  • Phillips Curve Multiple Choice

    However as unemployment increases, inflationary pressure eases, and eventually the Phillips curves returns to its prior position. 21) According to Gordon, fiscal policy â??

  • money supply and demand curves

    By the beginning of 1995, the prime rate had increased to over 8.5 percent. a) By using money supply and demand curves, show the effects of the increase in Y and P on interest rates assuming no change in the money supply.

  • Unemployment, inflation, budget deficit

    What are the advantages and disadvantages of such a plan? Whenever the supply of money increases, the value of each dollar declines. If too much money is printed, run away inflation can result.

View More Related Solutions