The Phillips Curve is given as;n = T° + (m + z) – auNow, consider the case where the inflation expectations are de-anchored. Assume the expected inflationn° is based on last year's inflation rate t-1 (nº = Ttt-1)1.1:Suppose Tt-1 = 3%. What would be the unemployment rate (U¿) when T = 4%?%3D1.2:Suppose the production function is given by:Y = N = L(1 – uz)What happens to the potential output when the markup increases?

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The Phillips Curve is given as; n = T° + (m + z) – au Now, consider the case where the inflation expectations are de-anchored. Assume the expected inflation n° is based on last year's inflation rate 7:-1 (nº = Tt-1) %3D 1.1: Suppose Tt-1 3%. What would be the unemployment rate (Ut) when t = 4%? 1.2: Suppose the production function is given by: Y; = N = L(1 – u;) What happens to the potential output when the markup increases?

The Phillips Curve is given as; n = T° + (m + z) – au Now, consider the case where the inflation expectations are de-anchored. Assume the expected inflation n° is based on last year's inflation rate 7:-1 (nº = Tt-1) %3D 1.1: Suppose Tt-1 3%. What would be the unemployment rate (Ut) when t = 4%? 1.2: Suppose the production function is given by: Y; = N = L(1 – u;) What happens to the potential output when the markup increases?

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.
How does the modern view of the Phillips curve differ from the earlier view? ___The early view of the Phillips curve suggested that the Phillips curve shifts with changes in inflation expectations. Such a view failed to recognize that the Phillips curve is a fixed inverse relationship between inflation and unemployment. ___The early view of the Phillips curve suggested that the Phillips curve is fixed, with higher rates of inflation associated with lower rates of unemployment, and vice versa. Such a view failed to recognize the importance of inflation expectations in determining the position of the short-run Phillips curve. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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
Problem 2: Production Model Suppose that firms produce according to the following production function: Y = At(K₂) (Lt) (N₁) ¹-a-B where At captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) (b) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given. Are there increasing returns to labor (L)? Land (N)? Explain.
1. Suppose the Phillips curve is represented by the following equation: " -1.- -10 - 2u, . Given this information, we know that the natural rate of unemployment in this economy is %.
Let’s see just how much high expected inflation can hurt incentives to save for the long run. Let’s assume the government takes about one‑third of every extra dollar of nominal interest you earn. You must pay taxes on nominal interest. However, if you are rational, you will care mostly about your real, after‑tax interest rate when deciding how much to save. ?i ??=?Eπ=π 23×?23×i (23×?)−?(23×i)−π Nominal interest rate Inflation (no surprises) Nominal after‑tax return Real after‑tax return 15% 12% 10% -2% 6% 3% 12% 9% 90% 87% 900% 897% Calculate the nominal and real after‑tax return for each case.Nominal interest rate = 6%, inflation = 3% Nominal after‑tax return: % Real after‑tax return: % Nominal interest rate = 12%, inflation = 9% Nominal after‑tax return: % Real after‑tax return: % Nominal interest rate = 90%, inflation = 87% Nominal after‑tax return: %…
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. Explain how the original Phillips curve was transformed into the expectations augmented Phillips curve. Using the latter, describe why any expansionary policy would not be effective in the long run and move the macro-economy back to the Natural Rate of Unemployment (NRU).
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2-1 Justin's demand for good 1 is given by the formula: x (p1, p2, I) = Suppose... 4-P1+6-p2 P1=$7/unit P2=$4/unit and I=$214 By how much will Justin's consumption of good 1 change if all prices AND his income were t increase by the same percent, as is the case here, this is called "pure inflation"). (Note: The numbers may change between questions, so read carefully) (Note: The answer may not be a whole number, so round to the nearest hundredth) 2-1 Justin's demand for good 1 is given by the formula: 2f (P1, P2, I) = how mucl 4-P1+6-p2 1=$2/unit 2=$2/unit nd =$531 Jote: The numbers may change between questions, so read carefully) Jote: The answer may not be a whole number, so round to the nearest hundredth)