Consider the table below. Is the data presented consistent with the Phillips curve model of wage determination? The natural rate of unemployment is 5% Point A B Unemployment rate 12% 12% Expected inflation rate Percent increase in wages 2% 0% -2% 0% Enter the letter of the statement below that best explains your reasoning: A. The rate of wage increase is higher when expected inflation is higher at the same rate of unemployment. This is consistent with the Phillips curve model of wage determination B. The rate of wage increase is lower when the unemployment rate is lower at the same rate of expected inflation. This is not consistent with the Phillips curve model of wage determination C. The rate of wage increase at the natural rate of unemployment differs by the difference in the expected rate of inflation. The Phillips curve has shifted up to take into account expected inflation. This is consistent with the Phillips curve model of waged determination D. Money wage decreases do not take place as expected inflation is negative even at the same rate of unemployment, a rate far above the natural rate of unemployment. This set of data could capture the phenomenon or rigid money wages in a Phillips curve framework.

Consider the table below. Is the data presented consistent with the Phillips curve model of wage determination? The natural rate of unemployment is 5% Point A B Unemployment rate 12% 12% Expected inflation rate Percent increase in wages 2% 0% -2% 0% Enter the letter of the statement below that best explains your reasoning: A. The rate of wage increase is higher when expected inflation is higher at the same rate of unemployment. This is consistent with the Phillips curve model of wage determination B. The rate of wage increase is lower when the unemployment rate is lower at the same rate of expected inflation. This is not consistent with the Phillips curve model of wage determination C. The rate of wage increase at the natural rate of unemployment differs by the difference in the expected rate of inflation. The Phillips curve has shifted up to take into account expected inflation. This is consistent with the Phillips curve model of waged determination D. Money wage decreases do not take place as expected inflation is negative even at the same rate of unemployment, a rate far above the natural rate of unemployment. This set of data could capture the phenomenon or rigid money wages in a Phillips curve framework.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Aggregate Supply

Section: Chapter Questions

Problem 1.1P

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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.
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.
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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.
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Suppose that an economy has the Phillips curve π = π−1 − 0.5( 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 5 percentage points? Using Okun’s law, compute the sacrifice ratio. d. Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give two scenarios that will achieve that goal.
A. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?" B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages? C. Provide an example of the book's short-run model being based on "microfoundations."
Suppose that an economy has the Phillips curve p = p−1 – 0.5(u − 0.06). A. How much cyclical unemployment is necessary to reduce inflation by 5 percentage points? Using Okun’s law, compute the sacrifice ratio. B. Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give two scenarios that will achieve that goal.