II. True or False short explanations are needed if False) 1. Suppose a long-lasting bad business cycle shock hits the economy. Some workers' skills are destroyed and they are permanently out of the labor unions. If the historical u" is 5% and the current u is 8%, then cyclical unemployment rate equals to 3%. 2. A positive Phillips curve shock (supply shock) always increases inflation and decreasing output. 3. Lucas critique says that using macroeconomic model and estimated parameters to forecast the effect of policy changes may not valid. 4. According to the IS-LM model, increasing government purchase can shift the IS curve to the right because it increases the investment.

II. True or False short explanations are needed if False) 1. Suppose a long-lasting bad business cycle shock hits the economy. Some workers' skills are destroyed and they are permanently out of the labor unions. If the historical u" is 5% and the current u is 8%, then cyclical unemployment rate equals to 3%. 2. A positive Phillips curve shock (supply shock) always increases inflation and decreasing output. 3. Lucas critique says that using macroeconomic model and estimated parameters to forecast the effect of policy changes may not valid. 4. According to the IS-LM model, increasing government purchase can shift the IS curve to the right because it increases the investment.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 1SCQ: Do rational expectations tend to look back at past experience while adaptive expectations look ahead...

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Suppose that a fall in consumer spending causes a recession. a. Illustrate the changes in the economy using both an aggregate supply/aggregate demand diagram and a Phillips curve diagram. What happens to inflation and unemployment in the short run? (5%) b. Now suppose that over time, expected inflation changes in the same direction that actual inflation changes. What happens to the position of the short-run Phillips curve? After the recession is over, does the economy face a better or worse set of inflation– unemployment combinations? (5%)
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."
If most people have rational expectations, how long will recessions last?
Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.
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.
1.True or False: Businesses and government care only about long-run economic forecasts, because they cannot adapt policy or output to accommodate short-run fluctuations. 2.Suppose the most recent data show that the average initial weekly claims for unemployment insurance have recently increased. This change suggests a )RECCESSIONARY or EXPANSIONARY) period in the coming months? 3.Economists disagree about how quickly the economy adjusts to an aggregate demand shock. In the view of some economists, people form expectations based on present realities and change expectations gradually as their experience unfolds. Such expectations are said to be rational, unexpected, adaptive, reasonable, or great ? 4. Suppose an unanticipated increase in investment spending causes the aggregate demand curve to shift to the right (from AD1AD1 to AD2AD2). According to adherents of the adaptive-expectations theory, the unanticipated change in aggregate demand will cause the economy to move in which…
1) According to the Phillips Curve, as unemployment falls what happens to inflation? Why? 2) According to the Phillips Curve, as unemployment rises what happents to inflaiton? Why? 3) According to the Aggregate Supply/ Aggrgeate Demand model, if AD increases what happebs to Price Level GDP and Unemployment 4) Accroding to the AS/AD model, if AD decreases what happens to PL, GDP and unemployment? 5) According to the AS/AD model if AS decreases what happens to PL GDP and unemployment? 6) Based on your answer to #5 how would you show the decrease in AS on the Philips Curve?
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.
Do you observe a Phillips curve, a reverse Phillips curve, or no relationship in the long-run?Explain your answer! What does this imply about the stability of the short-run Phillips curveover time? I attach a picture. Just answer if there is a Phillips curve, a reverse Phillips Curve or no relationship and why you think so. Thank you.
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)?
5. Consider the Phillips curve πt = πt-1 – 0.5(ut – 0.01). a) What is the natural rate of unemployment? Graph the short-run and long-run relationships between inflation and unemployment? b) How much unemployment is necessary to reduce inflation by 3%? Compute the sacrifice ratio. Show your work. c) Do flexible exchange rates permit a country to pick its own unemployment-inflation trade-off target?
Specific Subject: Macroeconomics - AD and AS Shocks Analyse the case of a negative supply shock caused by an increase in oil prices and compare with the shock caused by the Covid pandemic and answer next questions: Explain what would be the similarities and differences between the two shocks? Graph and explain what would be the effect of an expansionary economic policy (increase in aggregate demand)? Graph and explain what measures or government intervention would be most appropriate to deal with both types of shocks? Graph and compare the adjustment in both cases with and without government intervention. Please, I need just the answer of question N. 4. The others questions were answered by expert tutors already.