LaunchPad • An economy has the followingequation for the Phillips curve:3.T = Et – .5(u – 6)En = 0.7 7-1 + 0.3 7-2Okun's law for this economy is:(Y – Y-1)/Y-1 = 3.0 – 2.0 (u – u-1)The economy begins at its natural rate ofunemployment with a stable inflation rate of5 рercent.a. What is the natural rate of unemployment forthis economy?b. Graph the short-run tradeoff between infla-tion and unemployment that this economyfaces. Label the point where the economybegins as point A. (Be sure to give numericalvalues for point A.)c. A fall in aggregate demand leads to a reces-sion, causing the unemployment rate torise 4 percentage points above its naturalrate. On your graph in part (a), label thepoint the economy experiences that yearas point B. (Once again, be sure to givenumerical values.)d. Unemployment remains at this high levelfor two years (the initial year described inpart (c) and one more), after which it returnsto its natural rate. Create a table showingunemployment, inflation, expected inflation,and output growth for 10 years beginningtwo years before the recession. (Thesecalculations are best done on a computerspreadsheet.)e. On the same graph you used in part (b),graph the short-run tradeoff the economyfaces at the end of this 10-year period.Label the point where the economy findsitself as point C. (Again, use numericalvalues.)f. Compare the equilibrium before the recessionwith the new long-run (period ten)equilibrium. How much does inflationchange? How many percentage points of out-put are lost during the transition? What is thiseconomy's sacrifice ratio? ET = 0.7 #-1 + 0.3 7-2Okun's law for this economy is:(Y – Y-1)/Y-1 = 3.0 – 2.0 (u – u-1)The economy begins at its natural rate ofunemployment with a stable inflation rate of5 percent.a. What is the natural rate of unemployment forthis economy?b. Graph the short-run tradeoff between infla-tion and unemployment that this economyfaces. Label the point where the economybegins as point A. (Be sure to give numericalvalues for point A.)c. A fall in aggregate demand leads to a reces-sion, causing the unemployment rate torise 4 percentage points above its naturalrate. On your graph in part (a), label thepoint the economy experiences that yearas point B. (Once again, be sure to givenumerical values.)

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3. LaunchPad An economy has the following equation for the Phillips curve: TT = ETT - .5(u - 6) Em 0.7 +0.3 -2 Okun's law for this economy is: (Y-Y-1)/Y=3.0-2.0 (--) The economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. a. What is the natural rate of unemployment for this economy? b. Graph the short-run tradeoff between infla- tion and unemployment that this economy faces. Label the point where the economy begins as point A. (Be sure to give numerical values for point A.) c. A fall in aggregate demand leads to a reces- sion, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph in part (a), label the point the economy experiences that year as point B. (Once again, be sure to give numerical values.)

3. LaunchPad An economy has the following equation for the Phillips curve: TT = ETT - .5(u - 6) Em 0.7 +0.3 -2 Okun's law for this economy is: (Y-Y-1)/Y=3.0-2.0 (--) The economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. a. What is the natural rate of unemployment for this economy? b. Graph the short-run tradeoff between infla- tion and unemployment that this economy faces. Label the point where the economy begins as point A. (Be sure to give numerical values for point A.) c. A fall in aggregate demand leads to a reces- sion, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph in part (a), label the point the economy experiences that year as point B. (Once again, be sure to give numerical values.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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. d. Inflation is running at 6 percent. The central bank wants to reduce it to 2 percent. Give two scenarios that will achieve that goal.
A5 Subject - economics Choices for first blank are No, Yes or Uncertain
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.
15 Suppose that an economy has the Phillips curve: n = n(-1)-0.5 (u - 0.05) a. What is the natural rate of unemployment? How much cyclical unemployment is necessary to reduce inflation by 3 percentage points? Using Okun's law, compute the sacrifice ratio. b. Inflation is running at 6 percent. The central bank wants to reduce it to 2 percent. Give two scenarios that will achieve that goal.
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?
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.
Why does this mean? "the natural rate of unemployment" and also can elaborate more on why the longrun philips curve is vertical at the rate? why inflation is also constant in longrun equillibrium?
2. Analyze the effects of the following developments on both the short-run and the long-run Phillips curves. Use the graphs and explain in detail: a) a rise in the natural rate of unemployment b) a substantial increase in the price of energy
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