2. Suppose that an economy has the Phillips curve T = T-1 - 0.5(u – 5). a. What is the natural rate of unemployment? b. Graph the short-run and long-run relation- ships between inflation and unemployment. c. How much cyclical unemployment is necessary to reduce inflation by 4 percentage points? Using Okun's law, compute the sacrifice ratio.

2. Suppose that an economy has the Phillips curve T = T-1 - 0.5(u – 5). a. What is the natural rate of unemployment? b. Graph the short-run and long-run relation- ships between inflation and unemployment. c. How much cyclical unemployment is necessary to reduce inflation by 4 percentage points? Using Okun's law, compute the sacrifice ratio.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. As the short-run Phillips curve shifts from D to C to B to A, policymakers face: A. higher than expected inflation rates and lower unemployment rates. B. a lower rate of inflation for any level of unemployment. C. the same tradeoff between inflation and unemployment. D. a higher rate of inflation for any level of unemployment.
Inflation and unemployment data for Acadia can be found in the table below. Year 2018 2019 2020 ion Rate (%) 5 Inflation Rate (%) + 4.7 2.6 3.5 a. Draw a graph showing the Phillips curve for Acadia based on the values for inflation and unemployment in this economy from 2018 to 2020. Plot 3 points in total to draw the Phillips curve for Acadia below. Plot the plotting points in the order 2018, 2020 and then 2019. Unemployment Rate (%) Phillips Curve for Acadia 5.7 8.9 6.8 Tools Phillips Curve Ⓡ
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1) Explain the trade off between inflation and output in macroeconomics. 2)Exlain why the government may/may not be able to just randomly implement policies to increase ouput.
Suppose πt = πt−1 −2(ut −0.04) is the Phillips Curve equation in the economy. Answer thefollowing questions.a. What is the natural rate of unemployment?b. Graph the short run and the long run relationship between inflation and unemployment.c. How much cyclical unemployment is necessary to reduce inflation by 10 percentagepoint?d. The inflation is running at 12 percent. The Central Bank wants to reduce it to 9 percent.Give two scenarios that will achieve the goal.
a. Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment? b. Suppose the central bank wants to permanently reduce the inflation rate. What are the possible ways of doing so? c. What information does the sacrifice ratio tell us about the consequences of reducing inflation? B v E v + v Pa... ... III
Assume that expected inflation is based on the following: n = 0+1. An increase in 8 will cause a. a reduction in the natural rate of unemployment. b. an increase in the natural rate of unemployment. c. inflation in period t to be more responsive to changes in unemployment in period t. d. None of the other answers is correct. e. no change in the natural rate of unemployment.
A government is considering introducing a new trade policy that would rescind existing free trade agreements and impose import tariffs. -what effect would this have on natural unemployment rate -whould this shift the phillips curve up or down?
marginal cost minus marginal benefit. the time spent on an economic activity. the value of the best forgone alternative. the money cost of an economic decision. 2. (TCO1) Which is not a factor of production? Money Land Labor Capital 3. (TCO1) A point outside the production possibilities curve is attainable, but there is not full employment attainable, but there is not optimal allocation unattainable because the economy is inefficient unattainable because of limited resources 4. (TCO1) A basic characteristic of a command system is that wages paid to labor are higher government owns most economic resources free markets are never permitted in a command economy government planners play a limited role in deciding what goods will be produced 5. (TCO 2) Which is consistent with the law of demand? A decrease in the price of tacos causes no change in the quantity of tacos demanded An increase in the price of pizza causes an increase in the quantity of pizza demanded An increase in the price of…
The Phillips curve shows that, in the short-run: A. expected changes in aggregate demand produce a positive relationship between inflation and unemployment. B. unexpected changes in aggregate demand produce a positive relationship between inflation and unemployment. C. expected changes in aggregate demand produce an inverse relationship between inflation and unemployment. D. unexpected changes in aggregate demand produce an inverse relationship between inflation and unemployment.
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Consider the Friedman-Phelps model of the Phillips Curve as discussed in lecture. Assume the economy is currently at Y-full employment. When the Fed sells government securities to the public, and there are no other exogenous shocks to the economy, which one of the following is predicted to happen? The actual inflation rate increases, and the unemployment rate increases permanently. O The actual inflation rate increases, and the unemployment rate increases first and then gradually goes back to the natural rate of unemployment. O The actual inflation rate decreases, and the unemployment rate increases first and then gradually goes back to the natural rate of unemployment. The actual inflation rate decreases, and the unemployment rate increases permanently. The actual inflation rate decreases, and the unemployment rate decreases first and then gradually goes back to the natural rate of unemployment.