a) Explain the relationship between unemployment and inflation using the concept of Philips curve. What are...

a) Explain the relationship between unemployment and inflation using the concept of Philips curve. What are the critics on Philips Curve?

b) Use the Phillips Curve to explain policy responses to a supply shock caused by increase in the world price of oil

c) Discuss Walras's Law statement that the sum of the nominal excess demands for all goods in the economy must be zero.

Expert Solution

Rahul Sunny answered 8 months ago

The positive relationship between inflation and unemployment in the Philips curve comes from that Job searchers...

The positive relationship between inflation and unemployment in the Philips curve comes from that Job searchers underestimate the future inflation Job searchers overestimate the future inflation Firms have no expectation When the Fed buys bonds, it: Changes the size of the money multiplier Decreases the money supply Increases the money supply if people are very sensitive to the interest rate change, which of the following is a more effective policy to control the inflation in the short run? A ten-year...

Critically examine the phases of Business cycle. Explain the short-run Philips curve for inflation and Unemployment?...

Critically examine the phases of Business cycle. Explain the short-run Philips curve for inflation and Unemployment? Also explain its application in the ongoing scenario of Covid-19 outbreak What makes the CPI an imperfect measure to compute the inflation rate? The new measure SPI has become the new normal for computing Inflation, please discuss its advantages and disadvantages over the CPI. Why is it important for people who owns stocks and bonds to diversify their holdings? Explain the Consumption function...

Explain the concept of philips curve. Discuss how aggregate supply and philips curve are related to...

Explain the concept of philips curve. Discuss how aggregate supply and philips curve are related to each other?

Using the Phillips Curve framework, explain how there is a trade-off between unemployment and inflation. Use...

Using the Phillips Curve framework, explain how there is a trade-off between unemployment and inflation. Use a graph and equation to model this trade-off. Then show with a graph and equation what happens if inflation expectations increase from, for example, 3% to 8%. Graph and explain. Assume the natural rate of unemployment is 4%. Currently, the unemployment rate is 8%. Last period the economy experienced 5% inflation. Using the concepts of the Phillips Curve, discuss your diagnosis for the economy...

The short-run Phillips curve is the negative short-run relationship between the unemployment rate and the inflation...

The short-run Phillips curve is the negative short-run relationship between the unemployment rate and the inflation rate. Suppose the Phillips curve is given by ?t = ?e + 0.2 – 5ut where ?e= ? ?t-1. In this context ? is the actual inflation rate, ?e is the expected inflation rate and ? is a parameter indicating the relative speed of adjustment of expected inflation to actual inflation. Explain to the best of your abilities, the following questions. a) Explain the difference between...

What are the reasons for an observed relationship between inflation and unemployment in the long run...

What are the reasons for an observed relationship between inflation and unemployment in the long run having a upward sloping line instead of a vertical line as in the long run Philip's curve ?

7) Explain the relationship between the business cycle, unemployment, inflation and monetary and fiscal policy.

Explain the following : Short run tradeoff (negative relationship) between unemployment & inflation. policy is not...

Explain the following : Short run tradeoff (negative relationship) between unemployment & inflation. policy is not efficient in the LR. Money supply curve is vertical. Expenditure multiplier + Tax multiplier = 1.

Suppose that the tradeoff between unemployment and inflation is determined by the Phillips curve: ??=???????(???????). In...

Suppose that the tradeoff between unemployment and inflation is determined by the Phillips curve: ??=???????(???????). In addition, suppose that the country involves two political parties, the Left and the Right. Suppose that the Left party always follows a policy of high money growth and the Right party always follows a policy of low money growth. What “political business cycle” pattern of inflation and unemployment would you predict under the following conditions? 1) Every four years, one of the parties takes...

Assuming that there is no long-run relationship between the inflation rate and unemployment. If this is...

Assuming that there is no long-run relationship between the inflation rate and unemployment. If this is true, then why is it that people pay such close attention to every move made by the Fed?

Question