The following graph plots the short-run and long-run Phillips curves (SRPC and LRPC, respectively) for an economy currently experiencing long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the inflation rate is 8% per year. Suppose that the central bank for this economy has decided that inflation is too high and thus wants to decrease the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as   (deflation/disinflation) . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of____% True or False: If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve. -True   -False

If the current inflation rate is 10% and you are asked to predict the cost of decreasing it to 3% next year.  1)Will it  result deflation policy or a disinflation policy? Why?  2) Give an estimate of the cost in terms of output assuming the sacrifice ratio is 4 and explain the economic cost of reducing inflation by drawing the Phillips curve.  3) If an economist says computing the cost of this policy using the sacrifice ratio is not totally correct because people are rational and they will take the new policy into account when forming expectations about the future. Explain this statement and the reason behind it by  showing what happens  the Phillips curve 4)if people update their expectations about the future instantaneously. How costly would it be to reduce inflation if the adjustment in expectations occurs instantaneously?

MA4. 13. If the equation for a country's Phillips curve is π = 0.05 – 0.8(u – 0.05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 3 percent (0.03)?   A) .066   B) -.056   C) -.066   D) .056   11. The aggregate supply equation is Y = Y + α(P – EP). Assume that Y is 2,000, α = 200, P = 1.12 and EP = 1.00. What is the value of Y?   A) 2,232   B) 2,024   C) 2,400   D) 2,012   9. If policymakers announce in advance how policy will respond to various situations but then renege on their announcements, this a problem of:   A) policy by rule.   B) policy by discretion.   C) time inconsistency of policy.   D) monetary policy.   10. According to the sticky-price model, output will be above the natural level if:   A) firms expect a high price level and the demand for goods is high.   B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices.   C) the price level is above the…

Suppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run and \{(:Q_{C}=300)\} and that the demands for gold and silver are given by the following equations: P_{G}=960-Q_{G}+0.50P_{S} and P_{S}=600-Q_{S}+0.50P_{G} What the the equilibrium prices of gold and silver? The equilibrium price of gold is S and the equilibrium price of silver is S Please explain and show work.

true or false Suppose that the central bank lost credibility in the sense that people no longer believe its inflation target (that is, inflation expectations are not `anchored’). In this case, both short-run output and long-run output do not increase in response to a permanently higher inflation target.

Consider an economy with a natural unemployment rate, u, of 7%. The expectations-augmented Phillips curve is: 1= - 0.5(u -ū) Assume that Okun's Law holds so that a 1 percentage point increase in the unemployment rate maintained for one year reduces GDP by 2% of full employment output. Note: Okun's Law can be expressed as: *--2(u-ü) What is the long-run Phillips curve: OA. Inflation rate 8- OB. OC. O D. none of the answers is correct Inflation rate Inflation rate 6- 6- 6-

As with demand and supply analysis, changes in the economy can cause both shifts of and movements along the short-run Phillips curve. Which of the following would cause a shift of the short-run Phillips curve? Check all that apply.   An increase in government spending   A decrease in short-run aggregate supply   An increase in the expected inflation rate

2. The inflation-unemployment relationship The following graph shows the combinations of unemployment and inflation that existed in the United States for selected years between 1961 and 1969. Click on any blue point (circle symbol) on the graph to get its exact coordinates. You can also use the black point (cross symbol) to find the coordinates of other points along the curve. (Note: You will not be graded for any adjustments made to the graph.) INFLATION RATE (Percent) 1969 5.2 4.5 1988 85 1967 20 1.5 10 0.5 1960 1984 1963 1981 0 2.0 3.5 40 4.5 5.0 5.5 GO 4.5 7.0 UNEMPLOYMENT RATE (Percent)

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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…