The medium-run equilibrium is characterized by four conditions: - Output is equal to potential output Y = Yn - The unemployment rate is equal to the natural rate u = un - - · The real policy interest rate is equal to the natural rate of interest rË where output equals Yn The expected rate of inflation π² = π a. If the level of expected inflation is formed so πe equals π(-1) characterize the behavior of inflation in a medium-run equilibrium (think back to the general Phillips curve equation). b. If the level of expected inflation is π what is the level of actual inflation in the medium- run equilibrium?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Answer Question A and B

The medium-run equilibrium is characterized by four conditions:
- Output is equal to potential output Y = Yn
- The unemployment rate is equal to the natural rate u = un
- The real policy interest rate is equal to the natural rate of interest r, where output equals Yn
- The expected rate of inflation e = TT
a. If the level of expected inflation is formed so t° equals (-1) characterize the
behavior of inflation in a medium-run equilibrium (think back to the general Phillips
curve equation).
b. If the level of expected inflation is īī what is the level of actual inflation in the medium-
run equilibrium?
Transcribed Image Text:The medium-run equilibrium is characterized by four conditions: - Output is equal to potential output Y = Yn - The unemployment rate is equal to the natural rate u = un - The real policy interest rate is equal to the natural rate of interest r, where output equals Yn - The expected rate of inflation e = TT a. If the level of expected inflation is formed so t° equals (-1) characterize the behavior of inflation in a medium-run equilibrium (think back to the general Phillips curve equation). b. If the level of expected inflation is īī what is the level of actual inflation in the medium- run equilibrium?
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