The table below reports the actual inflation rate from 2016 to 2020. Complete the table, assuming people form expectations adaptively Give all answers to two decimals. Year Actual inflation rate Expected inflation rate Error 2016 3% 3% 0% 2017 5.50% a) b) 6.00% 5.50% c) 2018 d) 2.00% 2019 4.00% 2020 2.00% e) Look back at the table. Assuming people form expectations adaptively, which of the following statements are correct? Choose one or more: OA Monetary policy can reduce unemployment only if the policy is expected. O B. When inflation is increasing from year to year, people tend to overestimate inflation. OC When inflation is decreasing from year to year, people tend to overestimate inflation. O D. When inflation is decreasing from year to year, people tend to underestimate inflation. OE When inflation is increasing from year to year, people tend to underestimate inflation.

The table below reports the actual inflation rate from 2016 to 2020. Complete the table, assuming people form expectations adaptively Give all answers to two decimals. Year Actual inflation rate Expected inflation rate Error 2016 3% 3% 0% 2017 5.50% a) b) 6.00% 5.50% c) 2018 d) 2.00% 2019 4.00% 2020 2.00% e) Look back at the table. Assuming people form expectations adaptively, which of the following statements are correct? Choose one or more: OA Monetary policy can reduce unemployment only if the policy is expected. O B. When inflation is increasing from year to year, people tend to overestimate inflation. OC When inflation is decreasing from year to year, people tend to overestimate inflation. O D. When inflation is decreasing from year to year, people tend to underestimate inflation. OE When inflation is increasing from year to year, people tend to underestimate inflation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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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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.
Consider the following 3-equation model: Y 108-2rCB +2(G-T) (1) rCB =4+1.5(\pi-\pi)+0.5(Y-Y) (2) \pi \pie+0.5(YY) (3) wherey isoutput, \pi isinflation, \pi e =\pi = 2, andY* = 100. Expected future inflation is \pi e, and Y-Y⚫ is the output gap. The variable rCB is the interest rate set by the central bank. We may interpret \pi as the central bank's inflation target. Government ex- penditure, G, and net taxes, T, are given and set by the government. (a) Which equation is the IS curve, and which is the New Keynesian Phillips curve? Provide a brief economic explanation for the relationship between \pi and \pi e in Equation (3). (b) Find inflation, output and interest rates when G = T = 5. (c) Now suppose G = 8.5 and T = 5. How are inflation, output and interest rates affected? Is the impact of the fiscal expansion on output magnified or reduced by monetary policy? Explain.
In this Decision Point you learned a little about inflation and inflation expectations. Apply what you learned from this decision point to the following questions. Erica makes $25 per hour. Erica receives a 1.9%1.9% raise and inflation is 2.5%2.5% what happens to her real wage? Her real wage: rises by 1.9%1.9% rises by 2.5%2.5% falls by 0.6%0.6%. does not change.
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The text proposes the following model of expected inflation x = (1 - 0) x + 0,-1 What do we know about your process of the formation of expected inflation when 0 = 07 OA. Neither last year's inflation rate nor the long-run average inflation rate impact your view on this year's expected rate. OB. Last year's inflation rate will influence you to revise your estimates for this year's expected rate. OC. Regardless of what inflation was last year, you would expect it to be at the long-run average inflation rate this year. OD. Last year's inflation rate and the long-run average inflation rate have an equal impact on your view of this year's expected rate. What do we know about your process of the formation of expected inflation when 0-17 OA. Neither last year's inflation rate nor the long-run average inflation rate impact your view on this year's expected rate OB. Last year's inflation rate will be the only input for you to revise your estimates for this year's expected rate regardless of…
The.... real interest rate will be greater than the .... real interest rate when the .... rate of inflation is ...... than the .... rate of inflation a) actual / expected / ex-post / greater / ex-ante b) ex-post / ex-ante / actual / less / expected c) ex-post / ex-ante / actual / greater / expected d) actual / expected / ex-post / less / ex-ante e) actual / expected / ex-post / more severe / ex-ante
3. An economy has the following equation for the Phillips curve: n = En – 0.5(u – 6) People form expectations of inflation by taking a weighted average of the previous two years of inflation: En = 0.7 T.1 + 0.3 r.2 Okun's law for this economy is: (Y - Y.)/ Y.j= 3.0 – 2.0 (u-u.1) The economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. e. On the same graph you used in part (b), graph the short-run tradeoff the economy faces at the end of this 10-year period. Label the point where the economy finds itself as point C. (Again, use numerical values.) f. Compare the equilibrium before the recession with the new long-run (period ten) equilibrium. How much does inflation change? How many percentage points of output are lost during the transition? What is this economy's sacrifice ratio? 6% =E * -0.5 / U-c) ス E 大 - d.s u+3 A: (EX + 3 ) + (-o.so) CEX +3 ) - 0-5 u (6,5) Phillips curve 2. 1 2 3 4 unemployment (u). C D F G H K 1 Variables Year 1 Year 2 Year 3…