Suppose that an economy is estimated to have a 5% unemployment rate in the long-run. Furthermore, the country observes a decrease in inflation by2percentage points for every percentage point highertheunemployment rate is relative to the natural rate of unemployment. a.(2 points)
Write out the Phillips curve equation if the population has adaptive expectations for inflation and there are no inflation shocks. b.(6 points)
Suppose that the current inflation rate is 22%. The central bank announces that it plans to lower the inflation rate by 6 percentage points per year beginning in the following year until the inflation rate hits 4%. The central bank then intends to maintain the inflation rate at 4% afterwards. Determine the unemployment rate for the next five years .
Draw the short-run Phillips Curve and the Long-run Phillips Curve on the same diagram. Demonstrate the values for inflation and unemployment you calculated from part (b).d.(4 points) Suppose that the economy instead had rational expectations and that the central bank announcement was credible. Determine the unemployment rate for the next five years.(4 points)
Draw the short-run Phillips Curve and the Long-run Phillips Curve on the same diagram. Demonstrate how the figure changes with the credible central bank announcement. Explain the reasoning behind this change. II.(4 points)
Enumerate and explain three reasons why short-term forecasting models may be accurate for long-term forecasting. III.(6 points) What are the core principles that macroeconomists agree on according to Taylor (1997)? Explain each one in your own words.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more