Congratulations Youve just been appointed as your countrys F

Congratulations. You\'ve just been appointed as your country\'s Finance Minister of your country.Inflation has been ongoing for the past 5years at 5%.The target rate of unemployment ,5% is also the actual rate.

1. Demonstrate the economy\'s likely position on both short-run and long-run Philips curves.

2.The president tells you he wants to be re-elected.Devise a monetary policy strategy that might help him accomplish his goal.

Demonstrate that strategy graphically ,including the likely long-run consequences.

Solution

Answer:

a)

The economy is at point A on the short-run and long-run Phillips curves on the accompanying graph.

b)

The response to this inquiry relies upon the condition of the economy and the worries of the electorate. If the electorate wants lower unemployment, I would recommend increasing the money supply, moving the economy to a point such as Bin the accompanying graph. The problem would be that inflation would rise. If inflation were the concern, I would recommend reducing the money supply, moving the economy to a point such as C in the accompanying graph. The issue with this approach is that joblessness would rise

c)

The short-run results are disclosed in the responses to parts an and b. In the case of expansionary monetary policy, expectations of inflation will rise, which will shift the short-run curve up until prices and expectations of inflation are equal. This will occur at an inflation rate greater than 5 percent, such as point D. Unemployment will return to its target rate. In the case of contractionary monetary policy, expectations of inflation will fall, which will shift the short-run Phillips curve down until prices and expectations of inflation are equal, which will be an inflation rate less than 5 percent, for example, point E. Joblessness will come back to its objective rate.