Question

30. Suppose that the natural rate of unemployment equals 6%, and the public expect inflation to equal 4 %, and the coefficient a in PC equation = 0.4.

a. What is the unemployment rate when the actual inflation equals 2%? What if the actual inflation rate equals 10%?

b. During the 1990s, we observed the co-existence of low inflation and low unemployment. One of the arguments given by macroeconomists is that the expected inflation was lower than usual during the 1990s. Suppose now the public expect inflation rate to be 2%, do question (a) again.

c. Draw the long-run Phillips curve and the short-run Phillips curve corresponding to question (a) and that corresponding to question (b).

Answer #1

A) When actual and expected inflation are equal, unemployment Equal to natural rate of unemployment.

Each excess one percentage point inflation lead to 0.4 percentage Cyclical unemployment.

Actual inflation 2%

Excess inflation=2-4=-2%

Cyclical unemployment=-2*-0.4=0.8%

Unemployment rate=6+0.8=6.8%

Actual inflation=10%

Excess inflation=10-4=6%

Cyclical unemployment=6*-0.4=-2.4%

Unemployment rate=6-2.4=3.6%

B) actual inflation=2%

Excess inflation=2-2=0

Cyclical unemployment=0

Unemployment rate=6%

Actual inflation=10%

Excess inflation=10-2=8%

Cyclical unemployment=8*-0.4=-3.2%

Unemployment rate=6-3.2=2.8%

C) part a)

Part b)

Suppose that the natural rate of unemployment equals 6%, and the
public expect inflation to equal 4 %, and the coefficient
a in PC equation = 0.4.
What is the unemployment rate when the actual inflation equals
2%? What if the actual inflation rate equals 10%?
During the 1990s, we observed the co-existence of low inflation
and low unemployment. One of the arguments given by macroeconomists
is that the expected inflation was lower than usual during the
1990s. Suppose now...

Suppose that in 2020, the natural rate of unemployment is 5% and
the actual rate of unemployment is also 5%. Also inflation equals
4% and people expect inflation to be 4% next year (and all years
thereafter). Using the Phillips curve logic, suddenly there is a
rise in aggregate demand (maybe due to a jump in investment or
government spending, maybe a tax cut.)
A. in the short run by 2021, what happens to inflation and
unemployment ? Explain why...

If expected inflation equals zero, and currently actual
inflation is equal to expected inflation, the short run Phillips
Curve will most likely intersect the horizontal axis at:
Group of answer choices
a 3% unemployment rate.
a 2% unemployment rate.
a zero (0) percent unemployment rate.
the natural rate of unemployment.

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.

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....

Suppose that an economy has the Phillips Curve
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 government passes legislation that decreases the
natural rate of unemployment. How does this change the long- and
short-run Phillips curves?

Assume an economy that has a natural rate of unemployment of 6%
and an Okun’s Law curve with a slope of − 1/2 .
(a) Suppose short-run output over the next 4 years is +1%, 0%,
-1%, and -2%. According to Okun’s Law, what unemployment rates
would we expect to see in this economy? (b) Consider the same
economy in which the unemployment rate over the next 3 years is 6%,
7%, and then 4%. According to Okun’s Law, what...

In March 2013 the Fed announced that it might decrease its open
market purchases of securities by the end of the year. This
announcement suggests that the Fed is concerned that
a.
the unemployment rate will increase.
b.
the inflation rate will rise.
c.
the federal funds interest rate will fall too low for the Fed
to control it.
d.
the federal funds interest rate will rise too high for the Fed
to control it.
In the aggregate supply-aggregate demand...

20)
Suppose that the natural rate of unemployment in a particular
year is 6 percent and the actual rate of unemployment is 11
percent. Instructions: Enter your answers as whole numbers. a. Use
Okun’s law to determine the size of the GDP gap in percentage-point
terms. b. If the potential GDP is $500 billion in that year, how
much output is being forgone because of cyclical unemployment?

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