Suppose that 60% of the workers have indexed labour contracts. The Phillips curve is given by л₁ = π +0.12 - 2u. Expected inflation is given by л = (1 − 0)ñ + Оπ₁-1 where 0 is assumed to be zero. Suppose that the rate of unemployment is initially equal to the natural rate. In year t, π is assumed to be 2% and the authorities decide to bring the unemployment rate down to 3% and hold it there forever. What is the inflation rate at t + 3?

What term describes the remaining level of unemployment that occurs even when the economy is healthy?

Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.

What tradeoff does a Phillips curve show?

If inflation rises unexpectedly by 5, indicate for each of the following whether the economic actor is helped, hurt, or unaffected: A union member with a COLA wage contract Someone with a large stash of cash in a safe deposit box A bank lending money at a fixed rate of interest A person who is not due to receive a pay raise for another 11 months

Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?

What type of unemployment (cyclical, frictional, or structural) applies to each of the following: landscapers laid off in response to a drop in new housing construction during a recession. coal miners laid off due to EPA regulations that shut down coal fired power a financial analyst who quits his/her job in Chicago and is pursing similar work in Arizona printers laid off due to drop in demand for printed catalogues and flyers as firms go the internet to promote an advertise their products. factory workers in the U.S. laid off as the plants shut down and move to Mexico and Ireland.