15. Suppose that the relationship between inflation rate (x) and unemployment rate (4) is described by the following equation: H,-a = (m + z) – au, where m = 0.05, z = 0.04, and a = 2. In this economy, the authorities keep unemployment rate at 4% forever. a. If the modified Phillips curve describes the relationship between a and u correctly, how should “x, " be specified? Rewrite the equation using this specification. And assuming that ¤-1= 1%, compute nf, T4+1, and a4+2. b. Derive the natural rate of unemployment.

15. Suppose that the relationship between inflation rate (x) and unemployment rate (4) is described by the following equation: H,-a = (m + z) – au, where m = 0.05, z = 0.04, and a = 2. In this economy, the authorities keep unemployment rate at 4% forever. a. If the modified Phillips curve describes the relationship between a and u correctly, how should “x, " be specified? Rewrite the equation using this specification. And assuming that ¤-1= 1%, compute nf, T4+1, and a4+2. b. Derive the natural rate of unemployment.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 2PA

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