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If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, a. unemployment equals the natural rate and expected inflation equals actual inflation. b. unemployment is above the natural rate and expected inflation equals actual inflation. c. unemployment equals the natural rate and expected inflation is greater than actual inflation. d. None of the above is necessarily correct.
Suppose the economy is operating below potential output. Inflation is 2% and expected inflation is 3%. The unemployment rate is 8% and the natural unemployment rate is 4%. 54. iv. Draw a long-run Phillips curve and a short-run Phillips curve consistent with these conditions w. The government implements expansionary monetary policy. As a result, unemployment decreases to 6% and inflation increases to 2.5%. Expectations however. do not change. Show where the economy is on the graph you drew for (a)...
Problem 3.(36 points) Suppose the natural rate of unemployment equals 5%, and the Phillips curve is given by πt = πte − 0.25(ut − u∗t ). Suppose originally the economy is in the long run equilibrium, in which πte = 4%. 1. Determine unemployment and inflation rates corresponding to the original equilibrium. 2. Draw the Philips curve diagram with SRPC and LRPC. Mark the original long run equilibrium. 3. Suppose now the central bank performs a monetary expansion and raises...
2. Phillips Curve. An economy has the following functions for its short run aggregate supply (SRAS), Okun's Law (OL), and Phillips Curve (PC): SRAS: P = EP + (1/2)(y - 3) OL: (Y-Y) = -4(u-u") PC:T = ET - (1/5)( - 6) The economy begins at its natural rate of output with a stable price level equal to $5. a.) Output is at its natural level when the price level is equal to expectations. Calculate the natural rate of output...
32. The rational expectations hypotheses implies that discretionary macroeconomic policy is: a. relatively effective in both the short run and long run b. relatively effective in the short run but ineffective in the long run c. relatively ineffective in both the short run and long run d. effective in the long run since decision makers will continually make predictable, systematic errors 33. The modern view of the Phillips curve suggests that a. when inflation is less than anticipated, unemployment will...
1. Inflation and the Australian Economy The Australian Bureau of Statistics recently reported that there was no change in consumer prices between the start of January and end of March, equating to a quarterly inflation rate of 0%. The Reserve Bank of Australia has highlighted their concerns that inflation has been consistently lower than their target range of inflation a) Why would the RBA consider inflation that is too low to be problematic for the Australian economy? b) What measure...
1. Inflation and the Australian Economy The Australian Bureau of Stat tistics recently reported that there was no change in consumer , equating to a quarterly inflation rate of 0%. The Reserve Bank of Australia has highlighted their concerns that inflation has been prices between the start of Jan uary and end o rch consistently lower than their target range of inflation. a) Why would the RBA consider inflation that is too low to be problematic for the Australian economy?...
Suppose the Bank Negara Malaysia change the quantity of money in the economy. Graphically illustrate how does this change affect the interest rate in the long run?
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.
Average M2 growth for Japan during the 1980s was 10%. Between 1989 and 1992, average M2 growth fell to 3%. a) Graphically illustrate and explain the immediate impact of this event on short-run output, inflation, and the unemployment rate for Japan using the AS/AD model. b) As M2 growth remained low in Japan, what was the ultimate medium-run impact of this event on short-run output, inflation, and the unemployment rate for Japan? c) Since about 2010, average annual M2 growth...