Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 32, Problem 6DQ
To determine
Unemployment caused by the decrease in either Aggregate Demand or Supply.
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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.
Use Table 8P - 5 to calculate core and headline inflation in each time frame relative to the base year, assuming that each category is weighted equally in the calcula tion of headline inflation . [LO 8.2 , 8.4 a. 2012 to a base year . b . 2016 to a base year . . 2012 to 2016.
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 percent
Chapter 32 Solutions
Economics (Irwin Economics)
Ch. 32.7 - Prob. 1QQCh. 32.7 - Prob. 2QQCh. 32.7 - Prob. 3QQCh. 32.7 - Prob. 4QQCh. 32.A - Prob. 1ADQCh. 32.A - Prob. 2ADQCh. 32.A - Prob. 1ARQCh. 32.A - Prob. 2ARQCh. 32.A - Prob. 1APCh. 32.A - Prob. 2AP
Ch. 32 - Prob. 1DQCh. 32 - Prob. 2DQCh. 32 - Prob. 3DQCh. 32 - Prob. 4DQCh. 32 - Prob. 5DQCh. 32 - Prob. 6DQCh. 32 - Prob. 7DQCh. 32 - Prob. 8DQCh. 32 - Prob. 9DQCh. 32 - Prob. 1RQCh. 32 - Prob. 2RQCh. 32 - Prob. 3RQCh. 32 - Prob. 4RQCh. 32 - Prob. 5RQCh. 32 - Prob. 6RQCh. 32 - Prob. 7RQCh. 32 - Prob. 8RQCh. 32 - Prob. 9RQCh. 32 - Prob. 1PCh. 32 - Prob. 2PCh. 32 - Prob. 3PCh. 32 - Prob. 4PCh. 32 - Prob. 5P
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- 1.) Suppose the supply curve for labor in a competitive industry is given by Ls = 10 + w and the demand curve for labor is Ld = 40-4w. What is the equilibrium wage and employment? What is the unemployment rate? Suppose now that all firms pay an efficiency wage of $8/hr. How many workers lose their jobs? What is the increase in the size of the labor force? What is the increase in the labor force participation rate? What is the new unemployment rate?2.) Two individuals, Ms. S and Ms. T, just graduated from college and are looking for jobs. Both individuals have only limited amounts of savings. As a result, their reservation wages are identical. However, Ms. S had the opportunity to take this class, so her skills are superior to those of Ms. T. Answer the following questions, providing graphs to demonstrate what is occurring where appropriate.(a) How does the expected duration of unemployment compare across the two individuals?(b) How does the wage each individual expects to receive…arrow_forwardFigure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of: O A. 3% O B. 4% O C. 5%. O D. 7%arrow_forwardSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?arrow_forward
- 32. Suppose a person receives a 5% increase in pay when inflation is 4%. In this case, the nominal increase is__________ , the real increase is ____________, If the employee overestimates the real gain, this would be an example of___________. O. 9%, 4%, price confusion O. 5%, 1%, sticky wages O. 5%, 1%, employee misperceptions O. None of the other choices listed is correct. O. 5%, 4%, shoe leather costs 33. It is known that the method used by the BLS to calculate the U3 unemployment rate biases the results, All of the biases tend to cause the reported U3 statistic to be lower than what it really is. O. True O. Falsearrow_forward42. Suppose that there is a temporary fall in aggregate supply due to a drought. Whathappens in the long-run?(A) Higher prices cause permanent tensions, leading long-run aggregate supply to shiftleft, resulting in a lower natural rate of output.(B) Over time, as the drought conditions fade, aggregate supply rises and returns tothe original natural rate of output.(C) Aggregate demand shifts right, so that prices are higher but long-run output isunchanged.(D) If the person you’re dating enjoys Taylor Swift, dump them immediatelyarrow_forwardAssume that an economy's production function is Y=1,000L1/2,so that when the marginal product of capital is equated to the real wage the labor demand curve is L = 250,000(P/W)2. The labor supply curve is L = 31,250(W/P). The real wage that solves these equations is W/P = 2. Assume that the expected price level is 10, so that a nominal wage contract setting the wage at 20 is agreed to, making the expected real wage 2. If the price level turns out to be 10, 62,500 workers will be hired and output will be 250,000. If the actual price level turns out to be 20, what will the actual real wage be?b. According to the labor demand curve, how much labor will be demanded if the actual real wage is at the level given in part a?c. According to the production function, if the amount of labor given in part b is actually hired, how much will production be?arrow_forward
- just do 4 3) Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both agree that the real interest rate charged on the loan should be 10% and the loan is going to be totally paid ($20,000 plus interest), in a one-time payment, on December 31, 2020. Suppose the two parties to this transaction can perfectly foresee what the inflation rate for this period is going to be. Given this information, what is the nominal rate the Bank has to charge on this loan? Assume that the CPI is computed at the beginning of each year. Nominal interest rate refers to the interest rate before taking inflation into account. Nominal can also refer to the advertised or stated interest rate on a loan, without taking into account any fees or compounding of interest. Therefore the interest charged by the bank is 10% only with no adjustments of inflation rate over the year. The amount of money charged by the bank as interest in one year equals to ; 20000$× 10/100= 2000$.…arrow_forward28. Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. What are the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)? Group of answer choices a) P increases, Q increases, W decreases, L decreases, U increases b) P decreases, Q increases, W increases, L decreases, U increases c) P increases, Q increases, W increases, L increases, U decreases d) P increases, Q increases, W decreases, L increases, U increases e) P increases, Q decreases, W increases, L increases, U decreasesarrow_forward3) Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both agree that the real interest rate charged on the loan should be 10% and the loan is going to be totally paid ($20,000 plus interest), in a one-time payment, on December 31, 2020. Suppose the two parties to this transaction can perfectly foresee what the inflation rate for this period is going to be. Given this information, what is the nominal rate the Bank has to charge on this loan? Assume that the CPI is computed at the beginning of each year.arrow_forward
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