Consider an economy with a natural unemployment rate, u, of 4%. The expectations-augmented Phillips curve is: *= -0.5(u -ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: Y-ỹ --2(u-i) How much cyclical unemployment is necessary to reduce inflation by 3 percentage points? % Using Okun's Law, compute sacrifice ratio. (Enter an integer number, use only positive values)

Consider an economy with a natural unemployment rate, u, of 4%. The expectations-augmented Phillips curve is: *= -0.5(u -ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: Y-ỹ --2(u-i) How much cyclical unemployment is necessary to reduce inflation by 3 percentage points? % Using Okun's Law, compute sacrifice ratio. (Enter an integer number, use only positive values)

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macro Economics And The Self Regulating Economy

Section: Chapter Questions

Problem 8QP

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Consider an economy with a natural unemployment rate, u, of 7%. The expectations-augmented Phillips curve is: * = R² - 2(u - u) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: -2(u - ū) Y - Y Y a. Consider a two-year disinflation. In the first year actual inflation, x, is 6% and expected inflation, zº, is 10%. What is the first year unemployment rate? 9% (Enter your response as a percentage rounded to one decimal place) By what percentage does output exceed full employment output? -4% (Your answer should be a negative number if output is less than full employment output. Enter your response as a percentage rounded to one decimal place.) b. In the second year actual inflation, x, is 1% and expected inflation, xº, is 1%. What is the second year unemployment rate? 7% (Enter your response as a percentage rounded to one decimal place) By what…
Consider an economy with a natural unemployment rate, u, of 9%. The x = x - 2(u - ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year réduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: Y-Y expectations-augmented Phillips curve is: = -2(u - u) a. Consider a two-year disinflation. In the first year actual inflation, , is 13% and expected inflation, xº, is 17%. What is the first year unemployment rate? % (Enter your response as a percentage rounded to one decimal place)
Consider an economy with a natural unemployment rate, u, of 7%. The expectations-augmented Phillips curve is: 1= - 0.5(u -ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: *--2(u-ü) What is the long-run Phillips curve: OA. Inflation rate 8- OB. OC. O D. none of the answers is correct Inflation rate Inflation rate 6- 6- 6-
For this question, assume that the Phillips curve equation is represented by the following equation: πt - πt-1 = (m + z) - αut. A reduction in the unemployment rate will cause A) a reduction in the markup over labor costs (i.e., a reduction in m). B) an increase in the markup over labor costs. C) an increase in the inflation rate over time. D) a decrease in the inflation rate over time. E) none of the above
Assume that an economy has the Phillips curve Tt = T-1 - 0.5(u - 0.03). Then the natural rate of unemployment is: A) 0.12. B) 0.06. C) 0.5. D) 0.03. 9) Government debt equals the: A) difference between current government purchases and taxes. B) difference between saving and investment. C) sum of past budget deficits and surpluses. D) M1 money supply. 10) An estimate of what government spending and tax revenue would be if the economy were operating at its natural rate of output and employment is called the budget. A) cyclically adjusted B) inflation adjusted C) capital asset D) generational accounting I would appreciate it if you could write the answer to the question clearly and clearly. I would also like to state that I will give bad marks to questions that are incomplete. I will give the score as soon as the answer to the question comes. Also, l'd appreciate it if you could write it legibly.
Assume that the economy of Country X has 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 on the graph. Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? Short-run aggregate supply curve. Explain Long-run Phillips curve. Explain
You observe the following short-run Phillips curve for the economy: T = 9.2 -0.26(u - 6.5%) + v. There are no supply shocks to the economy, and the actual unemployment rate is 6.5% (and will stay that way for the foreseeable future). What will expected inflation be next year? Write your answer as a percentage, and round at one (1) decimal. Do not write the percentage sign. If you need more information to answer the question, write "O".
The following graph plots the short-run and long-run Phillips curves (SRPC and LRPC, respectively) for an economy currently experiencing long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the inflation rate is 8% per year. Suppose that the central bank for this economy has decided that inflation is too high and thus wants to decrease the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as (deflation/disinflation) . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of ____% True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve. -True -False
Assume that expected inflation is based on the following: πet = θπt-1. If θ = 1, we know that A) a reduction in the unemployment rate will have no effect on inflation. B) low rates of unemployment will cause steadily increasing rates of inflation. C) the actual unemployment rate will not deviate from the natural rate of unemployment. D) the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.
An economy has the following equation for the Phillips Curve: π = Eπ − 0.5(u − 6)People form expectations of inflation by taking a weighted average of the previous two years of inflation: Okun’s law for this economy is: Eπ = 0.7π−1 + 0.3π−2 (Y −Y−1)/(Y-1)=3.0−2.0(u−u−1) Th economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. 1. What is the natural rate of unemployment for this economy? 2. Graph the short-run tradeoff between inflation and unemployment that this economy faces. Label the point where the economy begins as A. 3. A fall in aggregate demand leads to a recession, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph, label the point the economy experiences that year as point B.
Assume the Phillips curve is given by tt = 2nt-1 + Y^t + zt where t 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. (a) What is inflation in period 1? (b) What is inflation in period 2? (c) What is inflation in period 3? %3D
The following graph plots the long-run Phillips curve (LRPC) and short-run Phillips curve (SRPC1SRPC1) for an economy currently experiencing long-run equilibrium at point A (grey star symbol). Which of the following is true along SRPC1SRPC1? -The actual unemployment rate is 6%. -The expected inflation rate is 5%. -The actual inflation rate is 5%. -The natural rate of unemployment is 3%. Suppose that the central bank for this economy suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated policy action, actual inflation falls to 3%. On the previous graph, use the black point (plus symbol labeled "B") to illustrate the short-run effects of this policy. Suppose that now, after a period of 3% inflation, households and firms begin to expect that the inflation rate will persist at the level of 3%. On the previous graph, use the purple line (diamond symbol) to draw SRPC2SRPC2, the short-run Phillips curve that is…