Suppose that the Phillips curve is given by
𝛑 = 𝛑⁴ - 2(u-5)
What is the natural rate of unemployment?
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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...
3. Discuss the relationship between the natural rate of unemployment, Un, and the Phillips curve, 1lt – itt-1 = -a(ut – Un); and explain why the natural rate of unemployment is also known as the non-accelerating inflation rate of unemployment (NAIRU). Hints: The central assumption used to derive the Phillips curve, Tet – 1lt-1 = -a(Ut – Un), was that tę = Tt-1, where tę represents expected inflation. What does this mean? Assume that Ut = Un. What happens to...
In the long run, the Phillips Curve shows that a. the natural rate of unemployment is independent of fiscal and monetary policy changes. b. unemployment and inflation have a direct relationship. c. an increase in unemployment leads to an increase in inflation. d. there is an inverse relationship between inflation and unemployment. e. unemployment increases when inflation decreases.
1. Inflation and unemployment. Suppose that the Phillips curve is given by: TI= +0.1 - 2ut where = 077-1. Also, suppose that is initially equal to zero. (a) What is the natural rate of unemployment? Suppose that the rate of unemployment is initially equal to the natural rate. In year t, the authorities decide to bring the unemployment rate down to 3% and hold it there forever. (b) Determine the rate of inflation in years t, t+1, t +2, +...
3. Suppose that the Phillips curve is given by: It = TE + a - but, where is the inflation rate, Ti is the expected inflation, ut is the rate of unemployment and, a and b are two positive parameters. Suppose that a fraction 1 € (0,1) of wage contracts are indexed to inflation and Ti = litt + (1 - 1) Tt-1. (a) Derive the new equation for the Phillips curve. [2 marks] (b) Derive an algebraic expression for...
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only need question 5, thanks
4. Suppose that the Phillips curve is given by TT, = 1 + 0.1 - 2u a. What is the natural rate of unemployment? Assume that expected inflation is given by m = (1 - 0) +010-1 And suppose that is initially equal to zero and it is given and does not change. It could be zero or any positive value. Suppose that the rate of unemployment is initially equal to the natural rate....
Assume that unemployment, u, is related to inflation, π, according to the following Phillips curve: u = u − φ (π−πe), where u is the natural rate of unemployment and πe is the expected rate of inflation. Assume rational expectations and that the central bank’s preferences are given by the loss function L(u,π) =λu+π2, where λ denotes the weight that the central bank assigns unemployment.a. Suppose that φ = 1. Show what rate of inflation a central bank with λ...
8. The Phillips curve is based on the observed negative relation between the rate of inflation and the unemployment rate. That is, decreases in the unemployment rate tend to be associated with increases in the rate of inflation a) Given what you know about the relation between the unemployment rate and the GDP gap, restate the Phillips curve in terms of inflation and the GDP gap. b) Based on the AD-IE model, and given your answer in (a), explain why...
So let's say that this European Central Bank, the European Central Bank expects the natural unemployment rate to be 6 percent, and the actual unemployment rate is 5.5 percent.A.) Use the Phillips curve illustration to determine what happens to inflation and unemployment over a long period of time.B.) Assuming the expectation is the actual natural unemployment rate (5.5%), then if the government decides to increase government spending, please briefly explain and use the Phillips curve to illustrate.
Figure: Short-Run Phillips Curve Inflation rate LRPC 7 8% Unemployment rate SRPC2 SRPC Refer to Figure: Short-Run Phillips Curve. The natural rate of unemployment is Ö Õ Ô