Question

- Consider the following short run Phillips Curve:

p = p^{E} – b(u – 0.06)

where u is the unemployment rate, p is
the inflation rate, p^{E} is the expected rate of
inflation, and b is a parameter.

- Carefully graph the short and long-run Phillips Curve. What is NAIRU an acronym for? Illustrate the NAIRU in your diagram.
- Why is b believed to be positive? That is, why do economists believe that lower unemployment rates cause higher inflation?
- Explain why some economists believe that b has permanently fallen and is close to zero? Why do other economists believe that the decline in b is temporary?

Answer #1

6. An economy has a Phillips curve takes the form of p
= 0.04 - 0.5(u - 0.03) where is the actual inflation rate
and u is the unemployment rate.
What is the short-run relationship between inflation and
unemployment according to the Phillip curve function above?
Explain demand pull inflation using the expression of Phillips
curve above.
Illustrate cost push inflation using the expression of Phillips
curve above.

Question) If the natural rate of unemployment falls,
a. both the short-run Phillips curve and the long-run Phillips
curve shift.
b. only the short-run Phillips curve shifts.
c. only the long-run Phillips curve shifts.
d. neither the short-run nor the long-run Phillips curves
shift.
Question) If the long-run Phillips curve shifts to the right,
then for any given rate of money growth and inflation the economy
has
a. higher unemployment and lower output.
b. higher unemployment and higher output.
c....

Assume that an economy is governed by the Phillips curve π = πe
– 0.5(u – 0.06), where π = (P – P–1)/P–1, πe = (Pe – P–1)/P–1, and
0.06 is the natural rate of unemployment. Further assume 9 πe =
π–1. Suppose that, in period zero, π = 0.03 and πe = 0.03—that is,
that the economy is experiencing steady inflation at a 3-percent
rate.
a. Now assume that the government decides to impose whatever
demand is necessary to...

Suppose that an economy has the Phillips Curve π=π↓t-1
-0.5(u-u^n) If the economy has the Non-Accelerating Inflation
Rate of Unemployment as 5%, demonstrate in the Phillips Curve
figure the short-run and long-run values on inflation and
unemployment. Make sure to include specific numerical values.

Suppose the short run Phillips Curve is given by:
Inflation = Expected Inflation +.2
-4*Unemployment Rate
Assume that initially,
people expect zero inflation.
Draw the short run Phillips Curve and the long run Phillips
Curve on a graph
On the graph, represent what would happen in the short run if
the government decided to run 4% inflation (setting inflation
=0.04).
On the graph, represent what would happen in the long run if
the government decided to run 4% inflation.

1. Milton Friedman argued that there is a
a.
permanent downward-sloping Phillips curve.
b. temporary
downward-sloping Phillips curve.
c.
temporary upward-sloping Phillips curve.
d. permanent
upward-sloping Phillips curve.
2.
Milton Friedman argued that the economy is not in long-run
equilibrium if the expected inflation rate __________ the actual
inflation rate.
a. is
less than
b. is
greater than
c.
equals
d. a and
b...

Please draw a fully-labeled Short-Run Phillips Curve with an
inflation rate of 2% and unemployment rate of 7% clearly labeled.
Now on the same graph, show the effects on inflation and
unemployment of an increase in the price of oil brought on by
political strife in the Middle East, Venezuela and Eastern Europe
(a negative supply shock).

1-) Assuming Okun’s law is given by U-Un=-075(Y-YP) and that the
Phillips curve is given by π=πe-0.6x(U-Un)+p ,
a) Obtain the short-run aggregate supply curve if expectations are
adaptive, inflation was 3% last year, and potential output is $10
trillion (assume p =0 ).
b) Calculate inflation when output is $8, $10, and $12 trillion and
plot the short-run aggregate supply curve.
Using the expression for the short-run aggregate supply curve
obtained in the previous problem, draw the new short-run...

QUESTION 1Consider two countries: Eastland and Westland. Eastland’s long-run
Phillips curve sits further to the right than does Westland’s
long-run Phillips curve. Eastland and Westland are identical in all
other ways. In particular, they have the same money supply growth
rates. In the long run, compared to Westland, which of the
following will we observe in Eastland? a.lower unemployment and higher inflation.b.higher unemployment and higher inflation.c.None of the other options is correct.(Wrong)d.higher unemployment and the same rate of inflation.QUESTION 2According...

1. Over time, the flattening and shifting inward of the
traditional Phillips Curve suggests that:
(a) the relationship between inflation and unemployment is
stronger than ever;
(b) a 1% change in the inflation is now associated with smaller
changes than before in the unemployment rate;
(c) every unemployment rate is now associated with a lower
inflation rate than previously;
(d) the U.S. now has an R* much higher than 1%.
2. According to the modern Phillips Curve, current inflation
statistically...

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