Question

1.The Phillips curve shows an important trade-off faced by economic policymakers. This trade-off was used to point out the legitimacy of government intervention in the economy for many years.

a) he trade-off demonstrated by the Phillips curve seemed to fail during the 1970s. Why? What happened?

b)( What is the currently accepted belief about the Phillips curve? (This question has to do with the long run vs short run)

2.Some people will argue against using either monetary or fiscal policy, instead supporting a laissez-faire approach to the economy. The well-known economist Milton Friedman, for example, believed in the permanent income hypothesis and was also a monetarist. What monetary policy prescription do monetarists support?

Answer 1

Answering only first question as per HomeworkLib policy

Question 1) a) Philips curve hypothesis failed during 1970s bcoz it was the period when world economy faced stagflation, that is stagnation plus inflation,

Unemployment rose with rise in inflation , as contrary to the Philips curve theory which says that inflation is inversely related to unemployment.

Due to rising oil prices, stagflation hit the Economy.

B) the currently accepted belief is that in short run, the Philips curve is a downward sloping curve between unemployment & inflation rate.

In the long run , no trade off exist between unemployment & inflation , & long run PC is vertical at the natural rate of unemployment.