Question

move at the same rate). Specify what you set aside on the shoulders; name all graphs and explain how you thought when doing the graphs. (3p) 2. The public in the country has adaptive expectations. Now suppose the actual and the expected inflation are both eight percent and have been so for a long time. Explain what happens if inflation for any reason suddenly would increase permanently from eight to twelve percent (one-time increase equivalent to four percentage points). What is the immediate effect on the country's unemployment? llustrate in your existing figure in sub-task 5a. How is the country's real wages affected? (4p) 3. Now show what happens when the next pay agreement round starts in a new chart. What happens to unemployment? Which inflation has the country? (3p) In one country, structural unemployment is seven percent Furthermore, the short-term Phillips curve is characterized by the following (linear) relationship: Inflation (%) 14 Arbetslöshet (%) 1 12 3 10 5 8 7 6 4 11 2 13 Inflation unemployment llustrate the short-term as well as the medium-term Phillips curve in the same diagram. (To draw the medium-term Phillips curve, you can assume that all nominal variables Screens 1-2 of 3 17/080 W ENG 6/8/2019

Answer 1

1.Philips curve:

An economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The concept has been proven empirically and some government policies are directly influenced by it.

PHILIPS CURVE 14 13 2 >shert tem Philips Carve Cas pven values) Medium-tem Phils Cne Cassamed values) 4S67 8 9 lo 12 13 14 2 Unempymed Inlta tion 's Lhen Ilation rate

2. If the inflation suddenly increases from 8 to 12% then, inflation leads to more money implies more money implies more labour implies more employment it means less unemployment.

3. With Economic growth comes inflation, which in turn should lead to more jobs and less unemployment.