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 control based on a random flip of a coin.
2) Two parties take turns.

Expert Solution

Rahul Sunny answered 2 years ago

Suppose that the tradeoff between unemployment and inflation is determined by the Phillips curve: u=un –α(π−Eπ),...

Suppose that the tradeoff between unemployment and inflation is determined by the Phillips curve: u=un –α(π−Eπ), where u denotes the unemployment rate, un the natural rate, π the rate of inflation, and Eπ the expected rate of inflation. In addition, suppose that the High Party always follows a policy of high money growth and the Low Party always follows a policy of low money growth. What “political business cycle” pattern of inflation and unemployment would you predict under the following...

If a Phillips curve shows that unemployment is high and inflation is low in the economy,...

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There is a short-run tradeoff between inflation rate and unemployment rate. In the short-run the tradeoff...

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...

(1)There is no long-run tradeoff between inflation and unemployment because

(1)There is no long-run tradeoff between inflation and unemployment because A inflation always returns to the baseline level. B real GDP always returns to potential GDP. C potential GDP declines as the inflation rate raises. D the aggregate demand curve always shifts back to its baseline position. (2)The “Goldilocks economy” refers to a situation in which (Check all correct answers.) A inflation is lower than the target rate.B inflation is equal to the target rate.C real GDP is equal...

Briefly explain the Phillips curve relation between inflation and unemployment and its policy implications for macroeconomic...

Briefly explain the Phillips curve relation between inflation and unemployment and its policy implications for macroeconomic management. What challenge did the Phillips curve relation pose to the Keynesians working in the economic environment of the post-War period and how did Keynesians reconcile to it? Briefly explain implication and predictive inconsistency of the Keynesian-neoclassical synthesis model.

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...

Explain the trade off between inflation and unemployment. Draw a Phillips Curve that illustrates this trade-off.

Briefly explain the Phillips curve relation between inflation and unemployment and its policy implications for macroeconomic...

Briefly explain the Phillips curve relation between inflation and unemployment and its policy implications for macroeconomic management. What challenge did the Phillips curve relation pose to the Keynesians working in the economic environment of the post-War period and how did Keynesians reconcile to it? Briefly explain implication and predictive inconsistency of the Keynesian-neoclassical synthesis model.

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...

7. To move to a point on the Phillips curve where inflation is lower, A. unemployment...

7. To move to a point on the Phillips curve where inflation is lower, A. unemployment must fall. B. the Fed could increase the money supply. C. the government could decrease taxes. D. All of the above E. None of the above are correct. which of the following statements is (are) correct? (x) During the early 1960s, inflation was about 1 to 3 percent in the United States, compared to about 4 to 6 percent in the late 1960s and...

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

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