Initially, the economy is operating at the natural rate of 4% unemployment. The anticipated rate of inflation is 4%, and the actual inflation rate is also4%.According to adaptive expectations, inflationrun. In the long run, the unemployment rate will beand the unemployment rate4%.Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 6%.According to adaptive expectations, inflationrun. In the long run, the unemployment rate will beand the unemployment rate4%.Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 9%.According to adaptive expectations, inflationunemployment rate. In the long run, the unemployment rate will be.As a result, real wages4%.4% in the short4% in the shortworkers are hired, and the

According to adaptive expectationsInitially, when the economy operates at the natural rate of 4%…

Answered: Initially, the economy is operating at…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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How will an increase in aggregate demand most likely affect the economy in the long run? Because output is above full-employment level of output, unemployment is below the natural rate of unemployment. The nominal wage will be pushed upward thus increasing the cost of production and aggregate supply decreases. Real GDP returns to full employment and the price level decrease. Because output is below full-employment level of output, unemployment is above the natural rate of unemployment. The nominal wage will be pushed downwards thus reducing the cost of production and aggregate supply increases. Real GDP returns to full employment and the price level increase. Because output is above full-employment level of output, unemployment is below the natural rate of unemployment. The nominal wage will be pushed upward thus increasing the cost of production and aggregate supply decreases. Real GDP returns to full employment and the price level increases Because output is above full-employment…
Assume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers increases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the change
Demand–pull inflation occurs when increases until equilibrium output exceeds the full employment level.
Expected inflation is 1.5%. The economy is initially in macroeconomic equilibrium with a real interest rate of 3% and an output gap of 0%. That is, the economy is operating at its potential. Using the Fed model linking the IS-MP framework with the Phillips curve, draw a graph showing the effect of the following shock: A severe recession impacts most of Western Europe, where several of the US most important trade partners are located. Your graph should clearly indicate the conditions both before and after the shock.
Gives explanation correctly and details
Illustrate graphically what would happen in the short run and in the long run to the price level and Real GDP if individuals hold rational expectations, prices and wages are flexible, and individuals overestimate the rise in aggregate demand (bias upward).
When the Fed increases the rate of growth of the money supply to jump start the economy, the unemployment type that will be directly affected is the: Group of answer choices frictional unemployment. natural rate of unemployment. structural unemployment. cyclical unemployment.
Which of the following is true about the Phillips curve? The empirical relationship between unemployment and inflation in the US disappeared after the 1970s. This means that the theoretical Phillips curve does not represent the world well. For a researcher to identify the theoretical Phillips curve from empirical data, the economy must be subject to supply shocks. The empirical Phillips curve implies that a government must choose between either low unemployment and high inflation or high unemployment and low inflation. When inflation expectations adjust, the negative empirical correlation between inflation and unemployment might disappear.
Suppose that the level of unemployment in the economy is determined by the follow equation: U = 7.55 1.88*(i - ie) Where U is the unemployment rate, i is the actual inflation rate, and it is the expected inflation rate. All variables are entered in percentage form (e.g. if inflation is 30.57%, you plug in 30.57 for i, not 0.3057). Last year, the inflation rate was 7.87%, and people have adaptive expectations. What does the inflation rate need to be this year in order for the unemployment rate to be 2.81%? Note: Everything is already in percentage form. You do not need to multiply or divide by 100 at any point. Enter in your answer as it is calculated in the equation. Round your final answer to two decimal places.
In a certain economy, the Dynamic Aggregate Supply (DAS) line is represented by the function = - π₁ = Ę ₁ = ₁ π + α ( Y₁ − Ÿ) + D and the inflation expectations formation mechanism is adaptive, that is, E₁+1 Absent a supply shock (v₁ = 0), in a figure representing period t inflation rate, π, on the vertical axis, and period t output, Y₁, on the horizontal axis, the period t DAS line will pass through the pair of points, : OA. (-1) B. (α, Y) ○ C. (Y) D. (πt, Yt)
FILL IN THE BLANKS Inflation measures the changes in the level of in the economy. Demand-pull inflation is caused by a shift in the aggregate demand curve, while cost-push inflation is caused by a shift of the aggregate supply curve. When the price level is increasing by an extremely high rate, the economy is said to be experiencing . Stagflation occurs when the economy is experiencing high inflation, high unemployment, and low at the same time. To combat inflation, the government can use contractionary monetary policy which will also lead to interest rates. Note, however, that there is a short-run tradeoff between inflation and as illustrated by the Philips Curve. Inflation is stable when the unemployment rate is equal to the rate of unemployment.
According to the Rational Expectation Theory, A) people reformulate their expectations of inflation once a change in the inflation rate has occurred. B) people never reformulate their expectations of inflation. C) expectations of inflation are based only on past values of the inflation rate. D) people reformulate their expectations of inflation once a change in policy has occurred. E) none of the above.

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