The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

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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 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

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Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 10% of the workers…

Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 10% of the…

Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 15% of…

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 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

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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 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

Expert Solution & Answer

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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 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

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Answer 5

Chapter 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

Answer 6

Chapter 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

Answer 7

Chapter 2, Problem 8QAP

a)

To determine

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

Answer 8

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

Answer 9

b)

To determine

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

Answer 10

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

Answer 11

c)

To determine

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

Answer 12

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

Answer 13

d)

To determine

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 2 - Prob. 1QAP Ch. 2 - Prob. 2QAP Ch. 2 - Prob. 3QAP Ch. 2 - Prob. 4QAP Ch. 2 - Prob. 5QAP Ch. 2 - Prob. 6QAP Ch. 2 - Prob. 7QAP Ch. 2 - Prob. 8QAP Ch. 2 - Prob. 9QAP Ch. 2 - Prob. 10QAP

The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

Solution Summary: The author explains the Okun's Law, which establishes the relationship between the level of unemployment and the rate of growth of the output.

Concept explainers

To explain:The reasons for unemployment getting reduced when the output growth rate is positive while using the principles of Okun’s law.

To find:The year in which the unemployment rate will rise more when the output growth has been at 2%, when the output growth has been at -2%.

Using the Philips Curve that the rate of unemployment will either be or be not zero when the inflation rate is neither rising nor falling.

Which economy is better with one economy having the larger slope and other economy having the smaller slope by applying the principles of Phillips Curve.

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