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- If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes?1) Explain the trade off between inflation and output in macroeconomics. 2)Exlain why the government may/may not be able to just randomly implement policies to increase ouput.What causedthe Great Inflation of the 1970s, and why has inflation been so much lowerin recent decades?
- The accompanying graph depicts the Short-Run Phillips O Curve (SRPC) when the public expects no inflation in the economy. Macmillan Learning a. According to this SRPC, what would inflation be if unemployment is 9%? 0 Incorrect b. Please move the SRPC line to reflect what would happen if the public's inflation expectations increased so that they now expect the inflation rate to increase by 2%. c. If the unemployment rate is still 9%, what is the new inflation rate after this change in expectations? % 2 % Inflation rate (%) 7 6 5 4 3 2 1 0 -1 -2 -3 0 1 SRPC 2 3 4 5 6 Unemployment rate (%) 7 8 9 10a. Suppose that the economy is at an inflation rate such that unemployment is above the natural rate. How does the economy return to the natural rate of unemployment? b. Suppose the central bank wants to permanently reduce the inflation rate. What are the possible ways of doing so? c. What information does the sacrifice ratio tell us about the consequences of reducing inflation? B v E v + v Pa... ... IIISuppose that an economy has the Phillips curvep=p-1 - O.S(u - 0.06),a) What is the natural rate of unemployment?b) Graph the short-run and long-run relationships between inflation and unemployment.c) How much cyclical unemployment is necessary to reduce inflation by S percentage points?d) Using Okun's law, compute the sacrifice ratio e.e)Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give Iwoscenarios that will achieve that goal.
- A Phillip's curve is given by = + 10% - 2u, where = ₁-₁ and also T₁-1 = 2%. Calculate the natural rate of unemployment. Imagine further that the economy at time t is at the natural rate of unemployment. Calculate the inflation rate at time t. Imagine further that the unemployment rate at time t+1 is 1 percentage point lower then at time t. Calculate the inflation rate at time t+1.Suppose πt = πt−1 −2(ut −0.04) is the Phillips Curve equation in the economy. Answer thefollowing questions.a. What is the natural rate of unemployment?b. Graph the short run and the long run relationship between inflation and unemployment.c. How much cyclical unemployment is necessary to reduce inflation by 10 percentagepoint?d. The inflation is running at 12 percent. The Central Bank wants to reduce it to 9 percent.Give two scenarios that will achieve the goal.Supposed that each of the following rows represents the choice faced by policy makers given the current set of U.S. institutions and technology. What is the opportunity cost of reducing unemployment from 8 percent to 4 percent? Explain your Choice. a) 4 percentage points of unemployment. b) 6 percentage points of unemployment. c) 6 percentage points of inflation. d) 4 percentage points of inflation. Uemployment Inflation 10 3 8 4 6 5 5 7 4 10
- O Macmillan Learning Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Suppose for next year, you expect GDP to be 3% below potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power? Unexpected inflation 1% 3% 2% 1% 4% 0% -1% -3% Phillips curve 3% Output gapExplain, with the aid of a graph, the demand-pull inflation as a cause of inflation.As expected, inflation and the short-run Phillips curve shifts illustrating that the cost of fighting inflation is Which of the following is an example of a cost of inflation? Check all that apply. A general decrease in purchasing power A restaurant's costs to reprint its menu to reflect fluctuating prices An unintended redistribution of wealth from borrowers to lenders Inc eased variability of relative prices O O O O
