MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Question
Chapter 18, Problem 9RQ
To determine
Expected rise in wages of workers.
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Assume that next year’s wage rate will be 3 percent higher than this year’s because of inflationary expectations. The actual inflation rate is 4 percent. At the beginning of next year, will the real wage be higher, lower, or the same as today? Explain.
Assume that Mark gets a fixed-rate loan from a bank when the expected inflation rate is 3 percent. If the actual inflation rate turns out to be 4 percent, who benefits from the unexpected inflation: Mark, the bank, neither, or both? Explain.
How does each of the following changes affect the real gross domestic product and price level of an open economy in the short run? Explain. The depreciation of the country’s currency in the foreign exchange market.
Using the data in Table 8P - 3 , calculate the CPI and the inflation rate in each year, using 2010 as a base year . [LO 8.2
15. Suppose that the relationship between inflation rate (π) and unemployment rate (u) is described by the following equation:
πt – πte = (m + z) – αut
where m = 0.05, z = 0.04, and α = 2. In this economy, the authorities keep unemployment rate at 4% forever.
a. If the modified Philips curve describes the relationship between π and u correctly, how should “πte” be specified? Rewrite the equation using this specification. Assume that πt–1 = 1%. Compute πt, πt+1, and πt+2.
b. Do you believe the answer in part (a)? Why or why not?
c. Derive the natural rate of unemployment.
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- The consumer price index was 100 in 1994 and 103.3 in 1995. Therefore, the rate of inflation in 1995 was about: O 3.3 percent O 2.8 percent O 4.4 percent 1 pts O 6 percentarrow_forwardIf the inflation rate is 3 percent and the nominal interest rate is 8 percent, how much is the after-tax real interest rate if the government imposes a 20 percent interest income tax? O a. 3.4 percent O b. 4 percent O c. None of the above O d. 5.4 percent.arrow_forward1. Suppose you’ll have an annual nominal income of $40,000 for each of the next 3 years, and theinflation rate is 5 percent per year. a. Find the real value of your $40,000 salary for each of the next 3 years. b. Suppose you have a COLA (Cost of Living Adjustment) of 5 percent per year in yourcontract, which raises your $40,000 salary by 5 percent for each of the next 3 years. Giventhe 5 percent inflation rate for each of those 3 years, what is the real value of your salary foreach year?arrow_forward
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