1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1.7 1.0 1.0 1.3 1.3 1.6 2.9 3.1 4.2 5.5 Inflation Unemployment 5.5 6.7 5.5 5.7 5.2 4.5 3.8 3.8 3.6 3.5

9. The Phillips curve in the late 20th century The following table presents historical unemployment and inflation data in the United States for the years 1977 through 1981. Year Unemployment Rate Inflation Rate (Percent) (Percent) 1977 7.1 6.5 1978 6.1 7.6 1979 5.8 11.3 1980 7.1 13.5 1981 7.6 10.3   Plot the data for these five years on the following graph. Note: You will not be graded on how you plot the points, but plotting the points accurately on the graph will help you examine the relationship between unemployment and inflation during this period and solve the problems that follow.

Suppose that the level of unemployment in the economy is determined by the follow equation: U = 7.55 1.88*(i - ie) Where U is the unemployment rate, i is the actual inflation rate, and it is the expected inflation rate. All variables are entered in percentage form (e.g. if inflation is 30.57%, you plug in 30.57 for i, not 0.3057). Last year, the inflation rate was 7.87%, and people have adaptive expectations. What does the inflation rate need to be this year in order for the unemployment rate to be 2.81%? Note: Everything is already in percentage form. You do not need to multiply or divide by 100 at any point. Enter in your answer as it is calculated in the equation. Round your final answer to two decimal places.

Inflation is always present, to some degree, in economic systems. (a) Define inflation; (b) explain the difficulties of measuring the current rate of inflation; and (c) explain the differences between “normal” and “destructive” levels of inflation—mentioning hyperinflation.

Q D)

1) Suppose the job separation rate (s) of an economy is 0.01 and the job findings rate (f) is 0.2. The long run unemployment rate (u) is then 4.7%. Suppose the government is implementing a new law that helps unemployed people find jobs sooner. Which of the following is the most likely outcome? a) s increases and u decreases b) s decreases and u increases c) fincreases and u increases d) f increases and u decreases

Question 40 Deflation a) is the same as disinflation; it means the rate of inflation has fallen. b) will make you better off if your nominal wages fall more slowly than prices. c) automatically implies that, on average, everyone is better off because prices have fallen. d) will make you better off if your nominal wages fall more rapidly than prices. e) will make you better off if your real wages fall more rapidly than prices.

Hand written solutions are strictly prohibited.

Suppose the Phillips curve in Country A is estimated to be                                                         ??=???−0.25(??−?∗?)πt=πte−0.25(ut−ut∗)(supplied in picture) The natural rate of unemployment in the year 2020 equals 3%. Inflation in the year 2020 is expected to be around 1%. The Okun’s coefficient in Country A equals 2. The central bank of Country A is considering three possible monetary policy scenarios for the year 2020.     Scenario 1: the central bank performs a monetary contraction, and the inflation rate becomes 0.5%.     Scenario 2: the central bank performs a monetary expansion, and the inflation rate becomes 1.5%.     Scenario 3: the central bank keeps monetary policy unchanged, and the inflation rate matches expected inflation and equals 1%. For each of these policy scenarios, 1) Determine the corresponding rate of cyclical unemployment in 2020 2) Determine the actual unemployment ??ut that would result in 2020 3) Use Okun’s law to determine the corresponding…