Learn Before
Mechanisms of Cost-Push Inflation: WS vs. PS Curve Shifts
Different types of cost-push shocks operate through distinct mechanisms within the WS-PS model, though they produce similar outcomes. A negative supply shock, like an oil price increase, causes the price-setting (PS) curve to shift downward. In contrast, an improvement in workers' bargaining power, such as through stronger unions, shifts the wage-setting (WS) curve upward. Despite these different initial shifts, both scenarios lead to a higher equilibrium unemployment rate and an upward shift of the Phillips curve.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Protectionist Policy
Weaker Competition as a Type of Inflationary Supply Shock
Climate Events as Inflationary Supply Shocks
Oil Price Shocks as an Inflationary Supply Shock for Net Importers
Mechanisms of Cost-Push Inflation: WS vs. PS Curve Shifts
An economist is analyzing recent events in a country's economy. They observe three distinct developments: a sudden and severe drought has damaged major crops, leading to higher food production costs; the central bank has lowered interest rates to encourage investment; and consumer spending has increased due to a rise in household wealth. To isolate the effect of a supply-side change on the price level, which of these developments should the economist identify as the inflationary shock?
Analyzing a Government Policy's Impact on Inflation
Analyzing an Oil Price Increase as an Inflationary Shock
When analyzing an inflationary shock, such as a sharp rise in global energy prices, the standard economic approach is to assume that aggregate demand also increases, leading to a rise in both the inflation rate and the level of economic output.
Disaggregating Economic Events to Identify an Inflationary Shock
Evaluating an Economic Analyst's Statement
An economy can experience various events that lead to a rise in the overall price level. Match each economic event to its correct classification as either a supply-side shock that directly increases inflation or a demand-side change.
Differentiating Sources of Inflation
When analyzing a change that originates from the supply side of the economy, such as a sudden increase in the cost of raw materials, economists hold the ______ side of the economy constant to isolate the event's direct impact on the inflation rate.
A country that is a net importer of energy experiences a sudden, sharp increase in global oil prices. Assuming the demand side of the economy remains constant, arrange the following events in the logical sequence that describes how this supply-side event leads to a higher inflation rate.
Upward WS Curve Shift as a Source of Cost-Push Inflation
Expectations-Driven Inflation
Learn After
Consider two separate economic events: (1) a nationwide increase in the market power of firms, allowing them to charge higher markups over their costs, and (2) the passage of new legislation that significantly enhances workers' employment protections, making it more difficult to dismiss them. Within the standard wage-setting (WS) and price-setting (PS) framework, what are the respective effects of these two events?
Analyzing Labor Market Shocks
Match each economic shock to its direct, initial effect within the wage-setting (WS) and price-setting (PS) framework, which models the determination of the equilibrium real wage and unemployment rate.
Analyzing Labor Market Shocks
In the wage-setting/price-setting model of the labor market, any event that triggers cost-push inflation, such as a sudden increase in the global price of oil or a government policy that strengthens workers' collective bargaining rights, operates through the same mechanism: a downward shift of the price-setting (PS) curve.
Contrasting Cost-Push Inflation Shocks
Discerning the Source of Stagflation
An economy is initially at its medium-run equilibrium. A sudden, sharp, and persistent increase in the global price of a key imported raw material occurs. According to the wage-setting (WS) and price-setting (PS) model, arrange the following events in the logical sequence that describes the economy's adjustment to a new medium-run equilibrium.
An economy experiences a significant and permanent increase in the market power of firms, allowing them to set higher price markups over their production costs. Within the wage-setting (WS) and price-setting (PS) framework, what is the ultimate effect of this change on the labor market's medium-run equilibrium?
An economy experiences a significant, permanent increase in the legislated minimum wage, raising it above the market-clearing level for low-skilled workers. Within the wage-setting (WS) and price-setting (PS) framework, which statement best analyzes the direct, initial impact of this policy?
Sources of Cost-Push Inflation