Question

1. Given the relation ?? = ?? ? + (? + ?) − ??? , a....

1. Given the relation ?? = ?? ? + (? + ?) − ??? ,

a. Know the effect of expected inflation, markup, other factors z, and unemployment on inflation.

b. Derive the original Phillips curve. Know the wage-price spiral.

c. The original Phillips relation broke down after 1970. State two reasons for that.

d. Assume ?? ? = ???−1 . Derive the modified Phillips curve.

e. Derive the natural rate of unemployment. Explain why it is also called NAIRU. f. Explain why a sustained inflation equal to the money growth rate.

g. Wage indexation and the effect of λ.

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