26. In order to derive the equation for the Phillips curve we assumed that the expected inflation rate, π, is equal to: a. b. C. Current inflation rate Next period's inflation rate Money growth rate d. Last period's inflation rate e. Money growth rate net of GDP growth rate

26. In order to derive the equation for the Phillips curve we assumed that the expected inflation rate, π, is equal to: a. b. C. Current inflation rate Next period's inflation rate Money growth rate d. Last period's inflation rate e. Money growth rate net of GDP growth rate

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 5PA

See similar textbooks

Related questions

Q: The idea of "economic rent" can be applied to resources other than land. What is economic rent? O…

A: Economic Rent is defined as the payment made to the owner of factor which is in excess of the…

Q: Explain how adverse selection leads to market failure. Give a hypothetical example/situation.

A: Moral hazard arises when one party is willing to take on more risk in order to receive more rewards,…

Q: An economist estimated that the cost function of a single-product firm is: C(Q) = 90 + 30Q + 25Q2 +…

A: Fixed cost is the cost that doesn't change with the increase or decrease in quantity. Average fixed…

Q: 4.Consider the following a highway investment with the following characteristics: a. Construction…

A: Given information Construction cost=$50000000 Annual operating cost=$500000 Traffic in year…

Q: Problem 1. Find the maturity value of the following simple interest investments. (i) $3125 invested…

A: Maturity value is the amount that will be received if you invest a sum of money for a certain time…

Q: Which of the following are considered money? (Check all that apply): A. Coins and paper money…

A: 1. Medium of exchange: Due to its widespread acceptance, money serves as a crucial medium of…

Q: Suppose that a firm has the following production function. Also suppose that the only costs the firm…

A: Producer earns maximum profit in the situation of economies of scale. The wage rate of labor…

Q: Suppose we have a duopoly with Firm 1 and Firm 2 and the following inverse demand function: P = 100…

A: In cournot duopoly , The quantity produced by each firm is determined by the intersection of…

Q: 5.4 - Industry Adjustments to Increases in Demand 1. In a/an, industry, an increase in demand will…

A: In the free market, the equilibrium price and quantity is determined by the forces of demand and…

Q: A thousand used cars are for sale in Boston. Some of the cars are of good quality (“plums”), and…

A: Asymmetric information is a situation when, in a transaction, one party has less information than…

Q: 2. In this question we will combine a very simplified model of an externality that has long-lasting…

A: An externality is a kind of cost/benefit that is borne by the individuals who are not directly…

Q: Given the utility function U=0.4∗X1,0.25∗X2,0.35∗X3U=0.4∗X1,0.25∗X2,0.35∗X3 and income M=300M=300,…

A: In economics, the utility function means the fulfillment of a consumer as a function of the…

Q: Asim True increase production from 4 to 5 fire engines because the True or False: If alternatively…

A: There is an inverse relationship between the quantity demanded and its own price. A fall in price…

Q: There are two alternatives P,M. With 15% MARR under 20 years study period, which alternative should…

A: Present value is the value of investment in today's dollar. Future value is the value of investment…

Q: 29. Company X has been contracting its overhauling work to Company Y for $40,000 per machine per…

A: Company Y cost of overhauling = 40,000 Costs associated with building facility - Initial Cost =…

Q: What are the main characteristic/assumption of monopoly market structure?

A: Monopoly: Monopoly means "alone to sell". In a market with a monopoly, there is only one seller of a…

Q: When a perfectly-competitive industry is in long-run equilibrium, Multiple Choice O O All of these…

A: Perfect Competition is a type of market structure that has the following features: There are many…

Q: T or F Employing economic cost/profit instead of accounting cost/profit when making business…

A: Profits are the company's earnings that remain after all costs are taken into account. The term…

Q: Explain to a new farmer why she/he should conduct an economic analysis to decide in she/he needs a…

A: Farmer: It refers to people who produce food for the economy. The more the farmers will produce more…

Q: Calculate the discounted payback period to recover an investment of $285,000 in enhanced CNC…

A: The payback period is the length of time it would take an investor to recoup the initial investment…

Q: Consider the demand curve for hair cuts is given by Q=100−2P and the market equilibrium price equals…

A: The consumer surplus refers to the difference between what a consumer is willing to pay and what…

Q: Say you are part of the government and found that there is a presence of a cartel; explain the…

A: A cartel is an association of the producers or suppliers of goods or services which is meant with…

Q: 2nd attempt Greg has the following utility function: u = x0.55x0.45. He has an income of $96.00, and…

Q: Do public libraries meet the definition of public goods?

A: Non-rival goods are ones for which consumers are not in competition. These products are still…

Q: What does the demand curve faced by an oligopoly? Aside from the petroleum/gas industry, can you…

A: An oligopolistic firm faces a kinked demand curve , which is a demand curve occurs when the demand…

Q: An article in the Wall Street Journal in 2020 noted that "The U.S. Treasury Department dropped its…

A: Anything that is commonly acknowledged to be valuable and may be used as a means of exchange to…

Q: Consider the following game, with a risk-neutral principal with preferences π = q - w hiring an…

A: A moral hazard arises when one party tends to take risks because the cost of risk (full or partial)…

Q: U2. Suppose that three risk-neutral bidders are interested in purchasing a Princess Beanie Baby. The…

A: An auction is a kind of economic mechanism that serves the aim of allocating items and determining…

Q: 7. In a vote between options A, B, and C, option C wins. When option B is eliminated and a vote is…

A: The correct answer is OPTION C The independence of the irrelevant alternatives is being violated…

Q: What might happen to the "real wage" paid to employees who earn the minimum wage if firms raise…

A: Nominal wage is the actual monetary wage received by employees. Real wage is the wage adjusted for…

Q: The demand for product Q is given by Q = 220 - P and the total cost of Q by: STC =1000+80Q -3Q² +=Q³…

A: Total revenue is the product of price and quantity. Marginal Cost is the cost of producing an…

Q: At a bowling alley, the cost of shoe rental is $2.25 and the cost per game is $4.25. Iff (n)…

A: Total cost means to the total expense incurred in reaching a specific level of output; if such total…

Q: the following demand and cost functions P is selling andQ is quantity in thousands P=30-2Q…

A: A Profit Maximizing Firm produces output at a level where Marginal Revenue is equal to Marginal Cost…

Q: Consider a oligopoly with two firms. Each firm has constant marginal cost of 3 dollar per unit and…

A: Nash equilibrium is the combination of outputs produced by both the firms where each firm has no…

Q: The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2…

A: [Dear student , as you have posted multiple questions , we are supposed to do only the first…

Q: Most economists believe the scarcity of resources will persist. Why?

A: Scarcity refers to the situation when the economic resources are limited and the needs of the…

Q: Question 6 What is a common discouragement to international business? O The reason is that in the…

A: International business refers to the transactions or buying and selling of goods and services…

Q: Determine how much of each good Mara will consume if she has $20 and if the price of books is $10…

A: Consumers adhere to the maximum of utility i.e. seeking to get the most pleasure possible from the…

Q: Advantages and disadvantages of ASEAN-Australia-New Zealand FTA

A: The agreement of a Free Trade Area between ASEAN Australia and New Zealand was the first time when…

Q: 5. Optimal price in San Antonio You decide to charge different prices in the two locations. To do…

A: Cost function in San Antonio can be calculated by using the fixed and the variable costs. Fixed cost…

Q: O O O O is not useful to a dominant firm if it could eliminate all its rivals through a price war.…

A: The market value of any product or service is determined in terms of the price level. An individual…

Q: Suppose that the U.S. dollar-Chinese yuan exchange rate is fixed by the U.S. and Chinese…

A: The value of one currency, measured in terms of another, is referred to as the exchange rate between…

Q: In an increasing cost industry, if there is a decrease in demand, the price in the long run will end…

A: An increasing-cost industry is one in which production costs rise as more firms compete in the…

Q: Considered the following data for an economy. Currency in circulation held by the public: CU = 400…

A: The term "monetary base" refers to the total amount of money that is either held by members of the…

Q: In the long run, some firms will respond by Shift the demand curve, the supply curve, or both on the…

A: An efficient consumption level provides maximum satisfaction from economic activities. At this…

Q: Outlining a revision to the Bank's monetary policy framework to explicitly incorporate exchange rate…

A: Monetary policy refers to the alterations made in money supply present in an economy to achieve…

Q: 3. Profit maximization in the cost-curve diagram The following graph plots daily cost curves for a…

A: A perfectly competitive firm is a price taker, which means it takes the price set by the market…

Q: Table 15-4 Year 2022 2023 Potential Real GDP $18.1 trillion 18.4 trillion Real GDP $18.1 trillion…

A: The amount of GDP that an economy could produce if its current levels of labour, physical capital,…

Q: Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he…

A: Annuity payment is defined as the amount that is fixed in the amount of money that should be…

Q: Chapter 1: Problem 20 Annie McCoy, a student at Tech, plans to open a hot dog stand inside Tech's…

A: Cost is the monetary payments that have to be made by the producer during the production process.…

Question

I need help with this question with explanation.

26. In order to derive the equation for the Phillips curve we assumed that the expected inflation rate, π, is equal
to:
a.
b.
C.
Current inflation rate
Next period's inflation rate
Money growth rate
d.
e.
Last period's inflation rate
Money growth rate net of GDP growth rate

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Introduction:

VIEW

correct option:

VIEW

Incorrect option:

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Suppose πt = πt−1 −2(ut −0.04) is the Phillips Curve equation in the economy. Answer thefollowing questions.a. What is the natural rate of unemployment?b. Graph the short run and the long run relationship between inflation and unemployment.c. How much cyclical unemployment is necessary to reduce inflation by 10 percentagepoint?d. The inflation is running at 12 percent. The Central Bank wants to reduce it to 9 percent.Give two scenarios that will achieve the goal.
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.
Suppose that an economy has a phillips curve π=π₋₁ -0.5(u-0.08) a) what is the natural rate of unemployement? b) how much cyclical unemployment is necessary to reduce inflation by 5% points? using okun's Law, compute the sacrifice ratio. c) inflation is runnuing 10%. the fed wants to reduce it to 5%. give two scenarios that will achieve that goal.
a) Explain the concept of the natural rate of unemployment using the expectations-augmented (modified or modern) Phillips curve model. b) Why is this model useful for policy-makers?
Consider the expectations adjusted Phillips’s curve and assume that expected inflation is given by πet = πt-1. Suppose that unemployment is initially equal to the natural rate and that π=10%. The central bank decides that inflation is too high and that, starting in year t, it will maintain the unemployment rate 1% point above the natural rate until the inflation rate has decreased to 2%. (a) What is the sacrifice ratio in this economy [Hint: the sacrifice ratio is the percentage of a year’s excess unemployment needed to reduce inflation by 1%. For a Philips curve given as πet − πt −1 = −α (ut − un ), the sacrifice ratio is 1/α]? (b) Compute the rate of inflation for year t, t+1, t+2, t+3, …, t+8. (c) For how many years must the central bank keep the unemployment rate above the natural rate of unemployment? Is the implied sacrifice ratio consistent with your answer to (a)?
1. 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. Graph the short-run tradeoff between inflation and unemployment that this economy faces. Label the point where the economy begins as A. (Be sure to give numerical values for point A.) 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 in part (b), label the point the economy experiences that year as point B.(Be sure to give numerical values.) Unemployment remains at this high level for two years (the initial year described in part (c) and one more), after which it returns to its natural rate. Create a table showing…
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.
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.
“The more people at work, the higher their bills” The Phillips Curve shows the correlation between unemployment and inflation.” In the light of this statement,(a) Draw the short-run trade-off between inflation and unemployment. How might the Central Bank move the economy from one point on this curve to another? (b) Draw the long-run trade-off between inflation and unemployment. Explain how the short-run and long-run trade-offs are related. (c) Illustrate the effects of the following developments on both the short-run and long-run Phillips curves. Give the economic reasoning underlying your answers.1. A rise in the natural rate of unemployment.2. A decline in the price of imported oil.
Describe the Phillips curve (O.G., not modified/expectations) and drawa graph of the relationship. How good was this model with 1960’s data vswith data from 1970-2000’s? Explain.
Describe the Phillips curve (O.G., not modified/expectations) and draw a graph of the relationship. How good was this model with 1960’s data vs with data from 1970-2000’s? Describe the Lucas critique.
13. Suppose the Phillips curve is represented by the following equation: πt − πt−1 = 20 − 2ut. Given this information, which of the following is most likely to occur if the actual unemployment in any period is equal to 6%? the rate of inflation will tend to increase the rate of inflation will be constant the rate of inflation will tend to decrease none of the above