Everything else held constant, a change in workers' expectations about inflation will cause to change. Select one: a. the production function b. short-run aggregate supply C. aggregate demand d. long-run aggregate supply

Everything else held constant, a change in workers' expectations about inflation will cause to change. Select one: a. the production function b. short-run aggregate supply C. aggregate demand d. long-run aggregate supply

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 2QR

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Everything else held constant, a change in
workers' expectations about inflation will cause
to change.
Select one:
a. the production function
b. short-run aggregate supply
C. aggregate demand
d. long-run aggregate supply

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1. Another economy has the production Y = A * K^0.5 * L^0.5, the marginal product MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 144 and the supply of labor w = 5 * EP/P *L^0.5 Productivity is A=50. In absence of shocks and policies, EP/P=1, the number of jobs is L = 60, and wage is w = 38.73. But now inflation is slower than expected, with EP/P=1.2. Find the new equilibrium number of workers. 2. Find the new equilibrium wage at EP/P=1.2 3. Graph the change in the labor market equilibrium. Mark the before and after equilibria with E0 and E1. Label axes and curves, map relevant values onto axes. 4. Now let's consider this same scenario in terms of the accelerationist Phillips curve. The labor force is N=64. Find the rates of unemployment before and after as (N-L)/N and map them into our surprise inflation indexes, EP/P. Label the natural rate of unemployment, show the cyclical rate of unemployment.
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