Assignment 7 [Key]

Assignment 7 [Key] - Suggested Answers to Assignment for...

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Suggested Answers to Assignment for Week 7 Econ 102 Fall 2008 University of California, Los Angeles Prepared by A.C.S. Brown 1. The Phillips curve describes the relationship between the unemployment Keynesian economics predicts that once an economy is operating at full employment, an increase in aggregate demand will push up the price level. Similarly, as aggregate demand decreases, ±rms will ±re workers as they notice their inventories rising and prices and wages will fall in order to return to the full employment level. New Zealand economist Alban Phillips graphed that negative relationship be- occurring simultaneously with high unemployment) experienced in the 1960s and 1970s. Later in the 1980s, the negative relationship appears unemployment 1 . In order to reconcile these changes, economic theorists needed to come up with a new model of the labor market that could ex- Keynesian economics was unable to do. 2. The idea of a "natural" rate of unemployment was introduced as a solution to this apparent paradox. A natural rate of unemployment determined by with non-zero unemployment, as even in the long-run, ±rms and workers will need to shift employment and create unemployed workers at some non-zero rate. This is the concept described by Professor Farmer on page
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This note was uploaded on 09/27/2009 for the course ECON 102 taught by Professor Serra during the Fall '08 term at UCLA.

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Assignment 7 [Key] - Suggested Answers to Assignment for...

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