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How does the short-run Phillips curve reflect a financial crisis as the one in 2008-2009?
a.
as a leftward shift in the short-run Phillips curve
b.
as a rightward shift in the short-run Phillips curve
c.
as a downward movement along the short-run Phillips curve
d.
as an upward movement along the short-run Phillips curve
a. as a leftward shift in the short-run Phillips curve
b. as a rightward shift in the short-run Phillips curve
c. as a downward movement along the short-run Phillips curve
d. as an upward movement along the short-run Phillips curve
Solution
The term financial crisis is applied broadly to a variety of situations in which some financial
assets suddenly lose a large part of their nominal value. Recession is a component of financial
crises. Negative GDP growth lasting two or more quarters is called a recession . In financial
crises, because of recession, consumers and households are left with less disposable income thus
reducing consumer spending.
The short run Phillips curve shows a negative tradeoff between wage increases and the
unemployment rate. With every increase in percentage change of wage rate there would be
decreased unemployment rate and vice versa.
Thus, a financial crises (reduced wages) being reflected by short run phillips curve is a
downward movement along the short-run Phillips curve that is moving to the right along the
short-run Phillips curve.
Thus Option (C) is correct option.

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How does the short-run Phillips curve reflect a financial crisis as th.docx

  • 1. How does the short-run Phillips curve reflect a financial crisis as the one in 2008-2009? a. as a leftward shift in the short-run Phillips curve b. as a rightward shift in the short-run Phillips curve c. as a downward movement along the short-run Phillips curve d. as an upward movement along the short-run Phillips curve a. as a leftward shift in the short-run Phillips curve b. as a rightward shift in the short-run Phillips curve c. as a downward movement along the short-run Phillips curve d. as an upward movement along the short-run Phillips curve Solution The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. Recession is a component of financial crises. Negative GDP growth lasting two or more quarters is called a recession . In financial crises, because of recession, consumers and households are left with less disposable income thus reducing consumer spending. The short run Phillips curve shows a negative tradeoff between wage increases and the unemployment rate. With every increase in percentage change of wage rate there would be decreased unemployment rate and vice versa.
  • 2. Thus, a financial crises (reduced wages) being reflected by short run phillips curve is a downward movement along the short-run Phillips curve that is moving to the right along the short-run Phillips curve. Thus Option (C) is correct option.