Refer to Figure 17-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that A the natural rate of unemployment in this economy is 5.5 percent. B the expected rate of inflation in this economy is 10 percent. ceteris paribus, a fall in the rate of inflation to 5 C) percent will increase unemployment to 7.5 percent in the short run. D) All of these are correct.

Refer to Figure 17-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that A the natural rate of unemployment in this economy is 5.5 percent. B the expected rate of inflation in this economy is 10 percent. ceteris paribus, a fall in the rate of inflation to 5 C) percent will increase unemployment to 7.5 percent in the short run. D) All of these are correct.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a version of the Phillips curve where a proportion of wages, 1 >> 0, are now indexed to the rate of inflation. In these labor contracts, nominal wages move one-for-one with the actual price level. The remaining proportion of wages, (1-2), are set on the basis of expected inflation: nt λnt (1) et+ (m+z)-aut (2) a. Suppose that лet=πt-1. Solve for the natural rate of unemployment (the rate such that t=t-1). Is the natural rate of unemployment different as a result of wage indexation? b. Re-write the Phillips curve in terms of the difference between чt and un using the value for un you calculated in (a). How does wage indexation impact the way changes in inflation respond to deviations of the unemployment rate from the natural rate? What is the intuition for this result?
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.
According to the St. Louis Federal Reserve the natural unemployment rate is 4.44 percent (Q2 2022 B) and the U.S. Bureau of Labor Statistics (BLS) estimates the U.S. unemployment rate (U3, March 2022 ) to be 3.6 percent. If you expect unemployment to continue to fall the short-run Phillips curve would predict: O A decrease in the inflation rate. An increase in the inflation rate. A decrease in the unemployment rate. An increase in the unemployment rate.
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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28 In applying the Phillips Curve, if Congress enacts expansionary policies to reduce unemployment, the cost is Multiple Choice O O an increase in the inflation rate. a decrease in the inflation rate. an increase in productivity. a decrease in productivity.
3. A nation consists of 2 political parties, Democrats and Republicans. The Democrats care more about unemployment than Republicans, and Repuhlicans care more about inflation than Democrats. When Democrats hold power, they choose an inflation rate, tp and when the Republicans hold power, they choose an inflation rate, TR. Phillips's curve is: T; = n - 1.5 (u - Un). We assume that: Tp > TR.Natural unemployment rate: Un = 5%. An election is about to be held. Assume that expectations about inflation for the coming year are formed before the election. (Essentially, this assumption means that wages for the coming year are set before the election.) Moreover, it is assumed that the Democrats and Republicans have equal chance of winning the election. 1) Solve for expected inflation, in terms of tpand TR. 2) Suppose the Democrats win the election and implement their target inflation rate, Tp. If T, = 3.2% and TR = 1.5%. Solve for the unemployment rate ult. 3) Suppose the Republicans win the…
32 There is a new central bank president who wants low inflation much more than the previous president did. According to the Augmented Phillips Curve Model, in this situation, which of the following would be the most help in keep unemployment from rising in the sort run? a.People know the central bank president's true desires and believe he will stay in office for a long time b.Peoples' wage wage contracts are long-lasting. c.People know the central bank president's true desires and believe that he will only be in office for a short time. d.People think that the central bank president's desires are the same as the previous president's and believe that the new president will be in office for a short time. e.People think that the central bank president's desires are the same as the previous president's and believe that the new president will be in office for a
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a) Explain the concept of the natural rate of unemployment using the expectations-augmented (modified or modern) Phillips curve model. b) Why is this model useful for policy-makers?
(a) What events of the 1970s and 1980s made economists believe that the shortrun relationship between inflation and unemployment was unstable (not fixed and permanent)? (b) Explain, using a diagram(s) and the concept of stagflation, the relationship between shifts in the SRAS curve and the position of the short-run Phillips curve.
5. Consider the standard Phillips curve. Select all the correct statements: (a) A positive aggregate demand shock will lead to an upward shift in the Phillips curve. (b) Changes in short-run output will lead to movements along the Phillips curve. (c) A negative inflation shock will lead to movements along the Phillips curve. (d) A shock to the price of oil will lead to a shift in the Phillips curve. (e) The inflation rate will always be equal to zero when short-run output is equal to zero.