Initially, the economy is operating at the natural rate of 4% unemployment. The anticipated rate of inflation is 4%, and the actual inflation rate is also 4%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be and the unemployment rate 4%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 6%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be and the unemployment rate 4%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 9%. According to adaptive expectations, inflation unemployment rate . In the long run, the unemployment rate will be . As a result, real wages 4%. 4% in the short 4% in the short workers are hired, and the
Initially, the economy is operating at the natural rate of 4% unemployment. The anticipated rate of inflation is 4%, and the actual inflation rate is also 4%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be and the unemployment rate 4%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 6%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be and the unemployment rate 4%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 9%. According to adaptive expectations, inflation unemployment rate . In the long run, the unemployment rate will be . As a result, real wages 4%. 4% in the short 4% in the short workers are hired, and the
Chapter27: The Philips Curve And Expetactions Theory
Section: Chapter Questions
Problem 5SQP
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