Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 32, Problem 4.4P
Subpart (a):
To determine
The new output level.
Subpart (b):
To determine
The new output level.
Subpart (c):
To determine
The new output level.
Subpart (d):
To determine
The value of the price surprise.
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In a certain economy, the Dynamic Aggregate Supply (DAS) line is represented by the function
=
-
π₁ = Ę ₁ = ₁ π + α ( Y₁ − Ÿ) + D and the inflation expectations formation mechanism is adaptive, that is,
E₁+1 Absent a supply shock (v₁ = 0), in a figure representing period t inflation rate, π, on the
vertical axis, and period t output, Y₁, on the horizontal axis, the period t DAS line will pass through the
pair of points, :
OA. (-1)
B. (α, Y)
○ C. (Y)
D. (πt, Yt)
Initially, the economy is operating at the natural rate of 4% unemployment. The anticipated rate of inflation is 4%, and the actual inflation rate is also
4%.
According to adaptive expectations, inflation
run. In the long run, the unemployment rate will be
and the unemployment rate
4%.
Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 6%.
According to adaptive expectations, inflation
run. In the long run, the unemployment rate will be
and the unemployment rate
4%.
Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 9%.
According to adaptive expectations, inflation
unemployment rate
. In the long run, the unemployment rate will be
.
As a result, real wages
4%.
4% in the short
4% in the short
workers are hired, and the
Chapter 32 Solutions
Principles of Economics (12th Edition)
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