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.
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...
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...
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...
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?
5) Philips curve and monetary policy
a) Show on a graph how short-run and long-run Philips curve
relates to the ASAD model. How a shock to the aggregate supply can
affect the Phillips curve? (11.3 marks)
b) Discuss Friedman’s idea of the long-run versus short-run
Phillips curve by including the idea of natural unemployment rate
and the role of expected inflation. What is the sacrifice ratio?
c) Explain the idea of rational expectations, inflation
targeting, and the Taylor rule.
d)...
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 ?
Using the Phillips curve diagram and in words, illustrate what
happens to the short-run/long-run
Phillips curve (inflation and unemployment) when the economy
faces a “tight” labor market
(actual unemployment rate is below the natural rate). Make sure
you properly label all the axes
and curves. Hint: Differentiate between short-run and long-run
and think how this affects the
inflation expectations.
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.
There is a short-run tradeoff between inflation rate and
unemployment rate. In the short-run the tradeoff of between
inflation rate and unemployment rate creates a challenge for
macroeconomic policymakers.
If you were macroeconomic policymaker, how do you balance the
short-run tradeoff between inflation rate and unemployment rate?
Explain.
What is the historical relationship between rates of
unemployment and inflation in the U.S. economy? What are the most
current figures for the unemployment rate and the inflation rate?
What does this...