A country's Central Bank is characterised by the following Loss function (L) and Phillips Curve (PC): Loss Function: L = (₁-₂)² +0.2(π₁ - 777² Phillips Curve: TT₁=Tt-1 +2(t-Ye) Where yt is actual output at time t, ye is potential output, π and π-1 are actual inflation at time t and time t-1 respectively, and is target inflation. Given this information, select ALL the CORRECT statements: The central bank's best response to shocks that affect this economy is given by (Yt-Ye) = -0.2 (π- TTT). If inflation becomes more sensitive to changes in output, the MR becomes flatter. This central bank is unemployment averse. This Phillips curve uses adaptive expectations to form expectation on future inflation.

A country's Central Bank is characterised by the following Loss function (L) and Phillips Curve (PC): Loss Function: L = (₁-₂)² +0.2(π₁ - 777² Phillips Curve: TT₁=Tt-1 +2(t-Ye) Where yt is actual output at time t, ye is potential output, π and π-1 are actual inflation at time t and time t-1 respectively, and is target inflation. Given this information, select ALL the CORRECT statements: The central bank's best response to shocks that affect this economy is given by (Yt-Ye) = -0.2 (π- TTT). If inflation becomes more sensitive to changes in output, the MR becomes flatter. This central bank is unemployment averse. This Phillips curve uses adaptive expectations to form expectation on future inflation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Part a.: The Phillips curve slopes (downward/upward), since a more positive output gap is associated with a (higher/lower) level of unexpected inflation. The labor market Phillips Curve slopes (downward/upward), since a more positive output gap is associated with a (higher/lower) level of unemployment. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Using what you know about the Phillips curve, determine whether the following quantities will increase, decrease, or remain the same. a. Unemployment in the short run after an increase in inflation: (Click to select) v b. Unemployment in the long run after an increase in inflation: (Click to select) v c. Inflation in the short run after a decrease in unemployment: (Click to select) d. Inflation in the long run after a decrease in unemployment: (Click to select) |(Click to select) decrease increase remain the same
An implication of the Rational Expectation Theory is that A) rational expectations of inflation are reformulated sooner than adaptive expectations of inflation. B) changes in how the inflation variable moves over time will not affect how expectations are formed. C) people can always accurately assess the actual rate of inflation. D) people always underestimate the future rate of inflation. E) people always overestimate the future rate of inflation.
Consider an economy with a natural unemployment rate, u, of 7%. The expectations-augmented Phillips curve is: 1= - 0.5(u -ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: *--2(u-ü) What is the long-run Phillips curve: OA. Inflation rate 8- OB. OC. O D. none of the answers is correct Inflation rate Inflation rate 6- 6- 6-
As with demand and supply analysis, changes in the economy can cause both shifts of and movements along the short-run Phillips curve. Which of the following would cause a shift of the short-run Phillips curve? Check all that apply. An increase in government spending A decrease in short-run aggregate supply An increase in the expected inflation rate
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Question 3: The Phillips Curve and Inflation Expectations Consider the following two modifications to the Phillips Curve equation we studied in class The Federal Reserve has been successful in achieving stable inflation around its target rate of 2% per year. Therefore, we may expect inflation expectations to be "anchored" in the sense that private sector agents expect inflation to eventually return to target over the long-run after any economic shocks. Suppose that inflation expectations are not adaptive, but are anchored to the inflation target as follows: π = (1-р)π + pπt-1 This equation says that firms forecast inflation as a weighted average of the inflation target and yesterday's inflation Tt-1. Note that adaptive expectations are a special case of this where the weight on yesterday's inflation p = 1. i. ii. Many economists have documented that the empirical Phillips Curve is almost flat. Therefore, suppose that the Phillips Curve does not depend on the current state of the…
Consider the short-run Phillips curve. If the actual unemployment rate falls below the full employment rate of unemployment, it should be expected that: the Phillips curve would shift downwards wages would fall the natural rate of unemployment would fall the inflation rate would increase
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