The effect of fall in fractional unemployment on the natural rate of unemployment and the Philips curve of the economy. Concept introduction: Natural Rate of Unemployment: The natural rate of unemployment is the rate of unemployment that corresponds to potential GDP or, equivalently, long-run aggregate supply . In other words, the natural rate of unemployment exists when the economy is in neither a boom nor a recession. It is a combination of frictional and structural unemployment. Frictional Unemployment: The unemployment that exists in the economy due to people being in the process of shifting from one job to another. Structural Unemployment: This form of unemployment arises when there is a mismatch between the skills that workers in the economy can offer, and the skills of workers demanded by the employers. Phillips Curve Analysis: The Phillips curve is an economic concept developed by A. W. Phillips that shows the existence of a stable and inverse relationship between inflation and unemployment. According to the theory, with economic growth comes inflation, which, in turn, leads to more jobs and less unemployment. This is a short-run analysis.

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Answer 1

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Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 17, Problem 3P

To determine

To explain:

The effect of fall in fractional unemployment on the natural rate of unemployment and the Philips curve of the economy.

Concept introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the rate of unemployment that corresponds to potential GDP or, equivalently, long-run aggregate supply. In other words, the natural rate of unemployment exists when the economy is in neither a boom nor a recession. It is a combination of frictional and structural unemployment.

Frictional Unemployment: The unemployment that exists in the economy due to people being in the process of shifting from one job to another.

Structural Unemployment: This form of unemployment arises when there is a mismatch between the skills that workers in the economy can offer, and the skills of workers demanded by the employers.

Phillips Curve Analysis: The Phillips curve is an economic concept developed by A. W. Phillips that shows the existence of a stable and inverse relationship between inflation and unemployment. According to the theory, with economic growth comes inflation, which, in turn, leads to more jobs and less unemployment. This is a short-run analysis.

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Answer 2

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 17, Problem 3P

To determine

To explain:

The effect of fall in fractional unemployment on the natural rate of unemployment and the Philips curve of the economy.

Concept introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the rate of unemployment that corresponds to potential GDP or, equivalently, long-run aggregate supply. In other words, the natural rate of unemployment exists when the economy is in neither a boom nor a recession. It is a combination of frictional and structural unemployment.

Frictional Unemployment: The unemployment that exists in the economy due to people being in the process of shifting from one job to another.

Structural Unemployment: This form of unemployment arises when there is a mismatch between the skills that workers in the economy can offer, and the skills of workers demanded by the employers.

Phillips Curve Analysis: The Phillips curve is an economic concept developed by A. W. Phillips that shows the existence of a stable and inverse relationship between inflation and unemployment. According to the theory, with economic growth comes inflation, which, in turn, leads to more jobs and less unemployment. This is a short-run analysis.

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Answer 3

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 17, Problem 3P

To determine

To explain:

The effect of fall in fractional unemployment on the natural rate of unemployment and the Philips curve of the economy.

Concept introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the rate of unemployment that corresponds to potential GDP or, equivalently, long-run aggregate supply. In other words, the natural rate of unemployment exists when the economy is in neither a boom nor a recession. It is a combination of frictional and structural unemployment.

Frictional Unemployment: The unemployment that exists in the economy due to people being in the process of shifting from one job to another.

Structural Unemployment: This form of unemployment arises when there is a mismatch between the skills that workers in the economy can offer, and the skills of workers demanded by the employers.

Phillips Curve Analysis: The Phillips curve is an economic concept developed by A. W. Phillips that shows the existence of a stable and inverse relationship between inflation and unemployment. According to the theory, with economic growth comes inflation, which, in turn, leads to more jobs and less unemployment. This is a short-run analysis.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 4

Question

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

Chapter 17, Problem 3P

To determine