Consider an economy with a natural unemployment rate, u, of 9%. Thex = 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 réducesGDP by 2% of full employment output. Note: Okun's Law can be expressed as:Y-Yexpectations-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)

Okun's Law is a rule of thumb used to examine the relationship between output and unemployment…

Consider an economy with a natural unemployment rate, u, of 9%. The expectations-augmented Phillips curve is: * = *° -2(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-Y = -2(u - ū) a. Consider a two-year disinflation. In the first year actual inflation, s, 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 9%. The expectations-augmented Phillips curve is: * = *° -2(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-Y = -2(u - ū) a. Consider a two-year disinflation. In the first year actual inflation, s, 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)

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 6CQ

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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
Using the Phillips curve: imagine a country is having a higher unemployment rate than usual for a longperiod of time (higher than the natural rate). What should happen in the short term and in the longterm?
. Assume that the economy experiences no change in productivity, money demand or its natural rate of unemployment in either the short or long run. The inflation rate responds immediately to correspond to the money supply growth rate. However, wage inflation adjusts to changes in the inflation rate with a time lag. Draw a diagram with inflation on the vertical axis and the unemployment rate on the horizontal axis that illustrates the Phillips curve relationship in the short run. Label the curve as PC1. Mark a point N on the horizontal axis that represents the natural rate of unemployment
Assume 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
In a country with the following Phillips curve: π = πe - 3(u - .06), when π = .06 and πe = .03, the unemployment rate is A) .03. B) .05. C) .07. D) .09.
The version of Okun's law discussed in class implies that with no change in unemployment, real GDP growth is 3 percent. If the unemployment rate rose by 2 percentage points, Okun's law predicts that real GDP would: a. decreased by 4 percent b. decrease by 2 percent c. increase by 1 percent d. decrease by 1 percent
Use the following Phillips curve equation to answer this question: πt - πt-1 = (m + z) - αut. Which of the following will cause an increase in the natural rate of unemployment? A) a reduction in m B) an increase in z C) an increase in α D) a reduction in expected inflation E) none of the above
The corresponding table includes a breakdown including Inflation Rate, Unemployment Rate, Price Level, and Real GDP. Using the data below, plot the graphs: Plot the short-run Phillips curve and the aggregate supply curve on separate graphs. Plot the long-run Phillips curve on a separate graph, when the natural unemployment rate is 6%. Inflation Rate Unemployment Rate Price Level Real GDP 2% 7% 104 9.8 3% 6% 103 10.0 4% 5% 102 10.2
The positive relationship between inflation and unemployment in the Philips curve comes from that: Answers: A. Firms has adaptive expectation. B. Job searchers overestimate the future inflation. C. Firms have no expectation. D. Job searchers underestimate the future inflation
Derive the original Phillips curve and answer the following questions:a) What effect does an increase in the expected price level have on the price level?b) What effect does an increase in the unemployment rate have on the price level?c) What effect does a decrease in business competition have on inflation?d) What is the effect of liberalizing foreign trade?e) What effect does the formation of trade unions have?
Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 15% of…
Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 10% of the…