Suppose πt = πt−1 −2(ut −0.04) is the Phillips Curve equation in the economy. Answer the following 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 percentage point? 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.
Suppose πt = πt−1 −2(ut −0.04) is the Phillips Curve equation in the economy. Answer the following 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 percentage point? 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.
Chapter17: The Trade-off Between Inflation And Unemploy
Section: Chapter Questions
Problem 4DQ
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Question
Suppose πt = πt−1 −2(ut −0.04) is the
following questions.
a. What is the natural rate of
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 percentage
point?
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.
Transcribed Image Text:Suppose t = Tt-1 + 2(ut — 0.04) is the Phillips Curve equation in the economy. Answer the
following questions.
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