vi. vii. viii. Plot WD and PD on a graph, where the vertical axis is given by nominal wages (W), and the horizontal axis is given by the unemployment rate (u), and identify the natural rate of unemployment. Using your graph from (v), demonstrate how an increase in prices shifts PD. Label this curve PD'. Is the unemployment rate corresponding to the intersection of WD and PD' the new natural rate of unemployment? Explain. If expectations about prices are based on past values of prices, P > pe corresponds to rising prices (i.e., inflation). Suppose P > pe. Is the short-run unemployment rate implied by your equation from (i) greater than or less than the natural rate of unemployment?
vi. vii. viii. Plot WD and PD on a graph, where the vertical axis is given by nominal wages (W), and the horizontal axis is given by the unemployment rate (u), and identify the natural rate of unemployment. Using your graph from (v), demonstrate how an increase in prices shifts PD. Label this curve PD'. Is the unemployment rate corresponding to the intersection of WD and PD' the new natural rate of unemployment? Explain. If expectations about prices are based on past values of prices, P > pe corresponds to rising prices (i.e., inflation). Suppose P > pe. Is the short-run unemployment rate implied by your equation from (i) greater than or less than the natural rate of unemployment?
Chapter10: Aggregate Supply
Section: Chapter Questions
Problem 1.1P
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Please answer ONLY V,Vi,Vii and Viii
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