2nt-1+ Y^ t + zt where rt is inflation in period t, Y^ t is the output gap in period t, and zt is cost-push inflation in period t. In period 0, inflation is 4%. In period 1, z1 = -0.01 due to an unexpected productivity increase. For all other periods, zt = 0. The output gap is zero all the time.
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- The Phillips curve is given by T, – T; = 0.1– 2u, The inflation is a year becomes the expected inflation in the next year. The unemployment rate is kept by the fed at 4%. If the inflation in the last year was 0, then the inflation in the next year will be: A. 1% В. 2% С. 3% D. 4% Answer O A O B DWhich of the following events would be expected to result in an upward shift of the standard Phillips curve? O The USD is appreciating against the Euro O A positive output gap leads to a more positive unexpected inflation O Wages across the country have risen 5% in the last month O Productivity growth in the United States is increasingAssume that the cconomy of Country X his an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above onthe graph. Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shill to the right, shift to the left, or remain the same? (i) Short-run aggregate supply curve. Explain. (ii) Long-run Phillips curve Identify a fiscal policy action that could be used to reduce the unemployment rate in the short run. Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified
- Suppose that an economy has the Phillips curvep=p-1 - O.S(u - 0.06),a) What is the natural rate of unemployment?b) Graph the short-run and long-run relationships between inflation and unemployment.c) How much cyclical unemployment is necessary to reduce inflation by S percentage points?d) Using Okun's law, compute the sacrifice ratio e.e)Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give Iwoscenarios that will achieve that goal.Suppose the Phillips curve is given by the following: πt = π² + (µ+z) aut πι = π + 0.1 Where: π = πt-1 Suppose initially, 0 = 0 a. What is the natural rate of unemployment? 2ut b. Suppose ut = Un. In year t, government authorities decide to bring the unemployment rate down to 3% and hold it there forever. Determine the rate of inflation in years t, t+1, t+2. c. Suppose in year t+5,0 increases from 0 to 1 and ut = 3%. Determine the rate of inflation in year 5 and year 6.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.
- Using the inflation-unemployment version of the Phillips curve with adaptive expectations, ifaggregate demand increasesA)workers will realize that inflation has changed in the long run but not in the short run.B)the SRPC will immediately shift to the right as workers expect higher pricesC)workers will mistakenly work less, resulting in a decrease in inflation and increase inunemploymentD)actual inflation will be less than expected inflation, resulting in workers mistakenly workingmore and unemployment falling.The Phillips curve is given by п, — п, %3D 0.1-2и, The inflation is a year becomes the expected inflation in the next year. The unemployment rate is kept by the fed at 4%. If the inflation in the last year was 0, then the inflation in the next year will be: A. 1% В. 2% С. 3% D. 4%If people in the economy expect inflation to be 6 percent but inflation turns out to be 3 percent, the economy is operating at point OB OC OE OF Inflation Rate 9% 6%- 3% I 1 I 1 I 1 Long-run Phillips Curve I 3 I B GEC 1 Short-run Phillips Curve for HF expected inflation of 9% Short-run Phillips Curve for expected inflation of 6% Short-run Phillips Curve for expected inflation of 3% Natural Rate of Unemployment Unemployment Rate
- Consider the expectations augmented Phillips curve model. Suppose that we are starting from long - runequilibrium with a central bank which cares a lot about unemployment and relatively little about inflation.a) Draw and carefully label the graph of this situation. b) Explain where the Phillips curve comes from inthis model. c) Explain why the equilibrium you specify is the only Nash equilibrium. d) Now suppose that anew central bank governor is appointed who cares a lot about inflation and relatively little aboutunemployment. Redraw your graph twice, once showing what happens if private agents know the newgovernor's preferences and again showing what happens if private agents mistakenly believe that thenew governor has the same preferences as the old governor. Explain clearly why the outcome is differentin the two cases.Suppose the Phillips curve is given by the following: 2ut It Where: π = Tt-1 Suppose πt-1 = 0; at year t, authorities decide to keep unemployment rate at 4% forever. a. Compute the rate of inflation for years t+1, t+2 and t+3. b. Suppose half of labor contract of workers has been indexed. What is the new equation for the Phillips curve? Compute the rate of inflation for years t+1, t+2 and t+3. i. π = 0.1 ii. iii. Compared to your answers in problem (a), what can you conclude?The Phillips curve is given by I-T =0.1-2u The inflation is a year becomes the expected inflation in the next year. The unemployment rate is kept by the fed at 4%. If the inflation in the last year was 0, then the inflation in the next year will be: A. 1% B. 2% C. 3% D. 4% Answer 04:29 PM 19-10-2021