LaunchPad • An economy has the followingequation for the Phillips curve:3.T = Et – .5(u – 6)En = 0.7 7-1 + 0.3 7-2Okun's law for this economy is:(Y – Y-1)/Y-1 = 3.0 – 2.0 (u – u-1)The economy begins at its natural rate ofunemployment with a stable inflation rate of5 рercent.a. What is the natural rate of unemployment forthis economy?b. Graph the short-run tradeoff between infla-tion and unemployment that this economyfaces. Label the point where the economybegins as point A. (Be sure to give numericalvalues for point A.)c. A fall in aggregate demand leads to a reces-sion, causing the unemployment rate torise 4 percentage points above its naturalrate. On your graph in part (a), label thepoint the economy experiences that yearas point B. (Once again, be sure to givenumerical values.)d. Unemployment remains at this high levelfor two years (the initial year described inpart (c) and one more), after which it returnsto its natural rate. Create a table showingunemployment, inflation, expected inflation,and output growth for 10 years beginningtwo years before the recession. (Thesecalculations are best done on a computerspreadsheet.)e. On the same graph you used in part (b),graph the short-run tradeoff the economyfaces at the end of this 10-year period.Label the point where the economy findsitself as point C. (Again, use numericalvalues.)f. Compare the equilibrium before the recessionwith the new long-run (period ten)equilibrium. How much does inflationchange? How many percentage points of out-put are lost during the transition? What is thiseconomy's sacrifice ratio? ET = 0.7 #-1 + 0.3 7-2Okun's law for this economy is:(Y – Y-1)/Y-1 = 3.0 – 2.0 (u – u-1)The economy begins at its natural rate ofunemployment with a stable inflation rate of5 percent.a. What is the natural rate of unemployment forthis economy?b. Graph the short-run tradeoff between infla-tion and unemployment that this economyfaces. Label the point where the economybegins as point A. (Be sure to give numericalvalues for point A.)c. A fall in aggregate demand leads to a reces-sion, causing the unemployment rate torise 4 percentage points above its naturalrate. On your graph in part (a), label thepoint the economy experiences that yearas point B. (Once again, be sure to givenumerical values.)

“Since you have posted multiple questions with multiple sub-parts, we will provide the solution only…

3. LaunchPad An economy has the following equation for the Phillips curve: TT = ETT - .5(u - 6) Em 0.7 +0.3 -2 Okun's law for this economy is: (Y-Y-1)/Y=3.0-2.0 (--) The economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. a. What is the natural rate of unemployment for this economy? b. Graph the short-run tradeoff between infla- tion and unemployment that this economy faces. Label the point where the economy begins as point A. (Be sure to give numerical values for point A.) c. A fall in aggregate demand leads to a reces- sion, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph in part (a), label the point the economy experiences that year as point B. (Once again, be sure to give numerical values.)

3. LaunchPad An economy has the following equation for the Phillips curve: TT = ETT - .5(u - 6) Em 0.7 +0.3 -2 Okun's law for this economy is: (Y-Y-1)/Y=3.0-2.0 (--) The economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. a. What is the natural rate of unemployment for this economy? b. Graph the short-run tradeoff between infla- tion and unemployment that this economy faces. Label the point where the economy begins as point A. (Be sure to give numerical values for point A.) c. A fall in aggregate demand leads to a reces- sion, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph in part (a), label the point the economy experiences that year as point B. (Once again, be sure to give numerical values.)

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

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Similar questions

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