15. Suppose that the relationship between inflation rate (x) and unemployment rate (4) is described by the following equation: H,-a = (m + z) – au, where m = 0.05, z = 0.04, and a = 2. In this economy, the authorities keep unemployment rate at 4% forever. a. If the modified Phillips curve describes the relationship between a and u correctly, how should “x, " be specified? Rewrite the equation using this specification. And assuming that ¤-1= 1%, compute nf, T4+1, and a4+2. b. Derive the natural rate of unemployment.

15. Suppose that the relationship between inflation rate (x) and unemployment rate (4) is described by the following equation: H,-a = (m + z) – au, where m = 0.05, z = 0.04, and a = 2. In this economy, the authorities keep unemployment rate at 4% forever. a. If the modified Phillips curve describes the relationship between a and u correctly, how should “x, " be specified? Rewrite the equation using this specification. And assuming that ¤-1= 1%, compute nf, T4+1, and a4+2. b. Derive the natural rate of unemployment.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that = 1° , and the Phillips curve equation for the economy is below: T = 4.5% - 0.2u, If inflation (T,) is 3.5%, then u, is 22.5 %. v tend to decrease If the actual unemployment rate in this economy is equal to 6%, the rate of inflation wi tend to increase be zero remain constant
3. A nation consists of 2 political parties, Democrats and Republicans. The Democrats care more about unemployment than Republicans, and Repuhlicans care more about inflation than Democrats. When Democrats hold power, they choose an inflation rate, tp and when the Republicans hold power, they choose an inflation rate, TR. Phillips's curve is: T; = n - 1.5 (u - Un). We assume that: Tp > TR.Natural unemployment rate: Un = 5%. An election is about to be held. Assume that expectations about inflation for the coming year are formed before the election. (Essentially, this assumption means that wages for the coming year are set before the election.) Moreover, it is assumed that the Democrats and Republicans have equal chance of winning the election. 1) Solve for expected inflation, in terms of tpand TR. 2) Suppose the Democrats win the election and implement their target inflation rate, Tp. If T, = 3.2% and TR = 1.5%. Solve for the unemployment rate ult. 3) Suppose the Republicans win the…
32 There is a new central bank president who wants low inflation much more than the previous president did. According to the Augmented Phillips Curve Model, in this situation, which of the following would be the most help in keep unemployment from rising in the sort run? a.People know the central bank president's true desires and believe he will stay in office for a long time b.Peoples' wage wage contracts are long-lasting. c.People know the central bank president's true desires and believe that he will only be in office for a short time. d.People think that the central bank president's desires are the same as the previous president's and believe that the new president will be in office for a short time. e.People think that the central bank president's desires are the same as the previous president's and believe that the new president will be in office for a
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Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 10% of the workers…
As the Federal Reserve sharply raises rates in the face if substantial inflationary pressures, economists are trying to gauge the extent to which the U.S. labor market is slowing. First, how might you try to measure labor market slack? Second, across the business cycle, describe how the gap between whatever is true unemployment, and a notion of “full” employment generally relates to inflationary pressures. Finally, relate this gap to the economy’s overall ‘output gap’ (actual GDP vs. potential GDP).
Suppose the Phillips curve is given by the following: 2ut It Where: π = Tt-1 Suppose πt-1 = 0; at year t, authorities decide to keep unemployment rate at 4% forever. a. Compute the rate of inflation for years t+1, t+2 and t+3. b. Suppose half of labor contract of workers has been indexed. What is the new equation for the Phillips curve? Compute the rate of inflation for years t+1, t+2 and t+3. i. π = 0.1 ii. iii. Compared to your answers in problem (a), what can you conclude?
Question 18 Suppose the economy currently has an inflation rate of 7%. Moreover, the slope of the economy's Phillips Curve is 1/2. Over the next 3 years, short-run output is +4 percent, O percent, and -2 percent. Based on this information you know that the inflation rate at the end of the third year is percent.
For each of the following scenarios, illustrate the effects of the development on both the short-run and long- run Phillips curves (SRPC and LRPC respectively). Plz show a colored graph so I can see if I moved them to the right positions For each of the following scenarios, illustrate the effects of the development on both the short-run and long-rum Phillips curves (SRPC and LRPC, respectively) There is a fall in the natural rate of unemployment. LRPC Unemployment Rate SRPC There is an advance in technology that makes production more efficient. There is a decrease in taxes. LRPC Unemployment Rate SAPC SRPC LRPC SAPC ° Movement along SRPC LRPC LRPC SRPC
The Phillips Curve is given as; n = T° + (m + z) – au Now, consider the case where the inflation expectations are de-anchored. Assume the expected inflation n° is based on last year's inflation rate t-1 (nº = Ttt-1) 1.1: Suppose Tt-1 = 3%. What would be the unemployment rate (U¿) when T = 4%? %3D 1.2: Suppose the production function is given by: Y = N = L(1 – uz) What happens to the potential output when the markup increases?
If the actual unemployment rate falls below the natural unemployment rate, how does the actual inflation rate change? The actual inflation rate ________. A. doesn't change, but the short-run Phillips curve shifts leftward B. rises up along the short-run Phillips curve C. doesn't change, but the expected inflation rate rises D. rises and the natural unemployment rate falls
Inflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. Draw a point that shows the natural unemployment rate and the expected inflation 0.9 rate. Label it B. 10 12 Unemployment rate (percent of labor force) Draw the short-run Phillips curve that is consistent with these data. Label it. >>> Draw only the objects specified in the question. Selected: Delete Clear none Next