Suppose that people did not believe that the Fed was serious about stopping inflation in 1979,...
Suppose that people did not believe that the Fed was serious about stopping inflation in 1979, 1980, and 1981. Can you then reconcile the 1981-1982 recession with the Phillips curve and the rational expectations approach? Explain.
Homework Answers
Recession in 1980s was at that time totally out of league with respect to other recessions faced in previous years,because situations in 1980s were different.
In this times most of the developed countries faced situation of High unemployment as well as high inflation both where as according to Phillips Curve there is trade off between unemployment and Inflation,situtation this time occurred named as STAGFLATION,Reason for this was Not disruptions in Demand Side economics rather in supply side economics as there wa s crisis situation in West Asia hence supply of crude oil effected leads to higher prices hence inflation as wella as due to War Global supply chains disrupted hence there was mounting Unemployment.
So this situation challenged the universality of PHILLIPS CURVE then many measures were taken and named as REAGANOMICS on the name of then President like decreased tax rates,incentives to firms,bailout packages etc.
On the other hand rational Expectations approach focused that people learn from their past mistakes and take decisions accordingly but such situation emerges at first place hence government as well as people both were confused regarding solutions of Situations like STAGFLATION in recession of 1980s.
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Suppose that people did not believe that the Fed was serious
about stopping inflation in 1979,...
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1. Inflation and unemployment. Suppose that the Phillips curve is given by: TI= +0.1 - 2ut...
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Please provide instructions In late 1980, the U.S. Commerce Department released new data showing inflation was...
Please provide
instructions
In late 1980, the U.S. Commerce Department released new data showing inflation was 15%. At the time, the prime rate of interest was 21%, a record high. However, many investors expected the new Reagan administration to be more effective in controlling inflation than the Carter administration had been. Moreover, many observers believed that the extremely high interest rates and generally tight credit, which resulted from the Federal Reserve System's attempts to curb the inflation rate, would lead...
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Assume that unemployment, u, is related to inflation, π, according to the following Phillips curve:
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1. Is the Phillips curve a myth? Intertemporal tradeoff between inflation and unemployment After the World...
1. Is the Phillips curve a myth? Intertemporal tradeoff between inflation and unemployment After the World War II, empirical economists noticed that, in many advanced economies, as unemployment fell, inflation tended to rise, and vice versa. The inverse relationship between unemployment and Inflation, was depicted as the Phillips curve, after William Phillips of the London School of Economics. In the 1950s and 1960s, the Phillips curve convinced many policy makers that they could use the relationship to pick acceptable levels...
i only need question 5, thanks 4. Suppose that the Phillips curve is given by TT,...
i
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....
Answer the following Suppose it is the late 1970s, and the rate of price inflation is...
Answer the following
Suppose it is the late 1970s, and the rate of price inflation is 12 percent. The Fed chairman, Paul Volker, seeks to permanently lower the rate of inflation (say, from 12% to 8%). The short-run and long-run Phillips Curves for the U.S at this time are illustrated in the figure below. Throughout this analysis, assume consumers have adaptive expectations. PCShort-Rum PC short- PCLong-Rom Inflation rate (percent per year) 12% Expected Inflation = 12% 7% Unemployment rate (percent)...
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, +...
Please provide
instructions
In late 1980, the U.S. Commerce Department released new data showing inflation was 15%. At the time, the prime rate of interest was 21%, a record high. However, many investors expected the new Reagan administration to be more effective in controlling inflation than the Carter administration had been. Moreover, many observers believed that the extremely high interest rates and generally tight credit, which resulted from the Federal Reserve System's attempts to curb the inflation rate, would lead...
2. Suppose people who are thinking about buying a home (demanders in the housing market) and current home owners who are thinking about selling their homes (suppliers in the housing market) suddenly believe that home prices are likely to be significantly higher next year than this year. a. Will this change in expectations cause the demand curve for housing this year to shift to the left or shift to the right? Explain. b. Will this change in expectations cause the...
1. Is the Phillips curve a myth? Intertemporal tradeoff between inflation and unemployment After the World War II, empirical economists noticed that, in many advanced economies, as unemployment fell, inflation tended to rise, and vice versa. The inverse relationship between unemployment and Inflation, was depicted as the Phillips curve, after William Phillips of the London School of Economics. In the 1950s and 1960s, the Phillips curve convinced many policy makers that they could use the relationship to pick acceptable levels...
i
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....
Answer the following
Suppose it is the late 1970s, and the rate of price inflation is 12 percent. The Fed chairman, Paul Volker, seeks to permanently lower the rate of inflation (say, from 12% to 8%). The short-run and long-run Phillips Curves for the U.S at this time are illustrated in the figure below. Throughout this analysis, assume consumers have adaptive expectations. PCShort-Rum PC short- PCLong-Rom Inflation rate (percent per year) 12% Expected Inflation = 12% 7% Unemployment rate (percent)...
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