c. -0.4 d. 2.0 B) Which statement is true. When the short-term interest rate in the Euro area is at zero percent. a. The ECB according to its mandate, cannot further reduce the policy rate b. The ECB can stimulate the eco

c. -0.4 d. 2.0 B) Which statement is true. When the short-term interest rate in the Euro area is at zero percent. a. The ECB according to its mandate, cannot further reduce the policy rate b. The ECB can stimulate the eco

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 4P

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Question

A) Assume that in response to the corona crisis, Portugal experiences a decrease in output of 1% and it is associated with a rise in the unemployment rate of 2 percentage points. What Is Okun's coefficient?

a. 0.4

b. -2.0

c. -0.4

d. 2.0

B) Which statement is true. When the short-term interest rate in the Euro area is at zero percent.

a. The ECB according to its mandate, cannot further reduce the policy rate

b. The ECB can stimulate the economy by lending directly to the government

c. The ECB can buy assets to reduce the long-term interest rates.

d. The ECB can steepen the Phillips curve by reducing the bargaining gap.

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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