Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 16, Problem 3PA
(a)
To determine
Find out the rate of expected inflation, the
(b)
To determine
Find out the rate of expected inflation, the unemployment rate, loss from the inflation, and unemployment at zero inflation target.
(c)
To determine
Choose the best inflation target.
(d)
To determine
Explain the effects of unexpected inflation.
(e)
To determine
Explain the problem associated with the unexpected inflation rate.
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Students have asked these similar questions
Which of the following is true about the Phillips curve?
The empirical relationship between unemployment and inflation in the US disappeared after the 1970s. This
means that the theoretical Phillips curve does not represent the world well.
For a researcher to identify the theoretical Phillips curve from empirical data, the economy must be subject
to supply shocks.
The empirical Phillips curve implies that a government must choose between either low unemployment and
high inflation or high unemployment and low inflation.
When inflation expectations adjust, the negative empirical correlation between inflation and unemployment
might disappear.
Which of the following is true about the Phillips curve?
Group of answer choices
The empirical relationship between unemployment and inflation in the US disappeared after the 1970s. This means that the theoretical Phillips curve does not represent the world well.
For a researcher to identify the theoretical Phillips curve from empirical data, the economy must be subject to supply shocks.
The empirical Phillips curve implies that a government must choose between either low unemployment and high inflation or high unemployment and low inflation.
When inflation expectations adjust, the negative empirical correlation between inflation and unemployment might disappear.
There is no long-run trade-off between inflation and output because:
Group of answer choices
monetary policy makers will have adequately controlled unexpected inflation in the long run.
fiscal policy makers will have adequately controlled unexpected inflation in the long run.
in the short run, output and unemployment are not related.
allowing inflation doesn't lead to sustainably higher output.
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Similar questions
- The Phillips curve in Lowland takes the form of π = 0.04 – 0.5 (u – 0.05), where π is the actual inflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form of π = 0.08 – 0.5 (u – 0.05). The current unemployment rate in both countries is 9 percent (0.09). Explain the difference in the Phillips curves in Highland and in Lowland.arrow_forwardThe cost of inflation reduction is a large, permanent increase in unemployment. true or falsearrow_forwardWhich of the following statements most accurately describes the relationship between inflation and unemployment in the United States during this time period? The short-run Phillips curve remained stable. The short-run Phillips curve shifted to the left after actual inflation was lower than expected. The short-run Phillips curve shifted to the right after actual inflation was higher than expected.arrow_forward
- The text notes that changes in oil prices can affect the inflation-unemployment outcome. Explain what effect changes in oil prices may have on these two variables.arrow_forwardDraw a Phillips curve graph here that shows a natural rate of unemployment of 4% and a current inflation rate of 2%. Make sure your lines and axes are labeled and your graph is complete! Use your knowledge of The Phillips Curve to answer the following questions. The threat of future inflation: makes people reluctant to loan money for long periods. makes people eager to loan money for long periods. has no effect on loaning money. increases the value of money paid back in the future. makes people reluctant to borrow money for long periods. According to the short-run Phillips Curve, there is a trade-off between: interest rates and inflation. the growth of the money supply and interest rates. unemployment and economic growth. inflation and unemployment. economic growth and interest rates. Which of the following is true of the long-run Phillips curve? it shows there is a trade-off between unemployment and inflation. it is positively sloped when the inflation rate exceeds…arrow_forwardAn 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.arrow_forward
- Discuss the short-run tradeoff between inflation and unemployment.arrow_forwardThe Phillips curve in Lowland takes the form of π = 0.04 − 0.6(u − 0.05), where π is the actualinflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form ofπ = 0.08 − 0.4(u − 0.05). The current unemployment rate in both countries is 9 percent (0.09). For both countries, analyze the impact on inflation of a 2% decrease in unemployment? In which country will policymakers face a bigger trade-off if they try to reduce unemployment in the shortrun? Whyarrow_forwardThe Phillips curve in Lowland takes the form of π = 0.04 – 0.5 (u – 0.05), where π is the actual inflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form of π = 0.08 – 0.5 (u – 0.05). The current unemployment rate in both countries is 9 percent (0.09). Explain the similarities in the Phillips curves in Highland and in Lowland.arrow_forward
- . a) Derive the socially optimal inflation rate and explain. b)Derive the central banks preferred inflation rate and provide an explanationarrow_forwardIf the Phillips curve in an economy is given by π = π-1-0.5(u-0.02), then it takes 6 percentage points of cyclical unemployment to reduce inflation by 3 percentage points requires 3 percentage points of cyclical unemployment to reduce the rate of inflation by 6 percentage points the natural rate of unemployment is 3% the natural rate of unemployment is 5% the natural rate of unemployment is 6%arrow_forwardProblem 2. Consider the following Phillips Curve n = En – 0.6(u – 0.05) a) Explain the above Philips Curve briefly. b) Assume that Ex = 0.02. Draw the graph of the Phillips curve. What is the slope of the curve? What are the long-run unemployment rate and the long-run inflation rate? c) Is there any possibility that a government can decrease the inflation rate without any change in the unemployment rate? If yes, how? Explain it. d) Is there any possibility that a government can increase the inflation rate without any change in the unemployment rate? If yes, how? Explain it. e) Considering the Philips Curve as T = 0.02 – 0.6(u – 0.05), and the government announces that it implements an expansionary monetary policy: • el) Describe the Lucas Critique. • e2) Considering the Locus Critique, do you think that the above Philips curve is a good equation to study the relationship between inflation and unemployment? Why? Explain it.arrow_forward
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