This preview shows page 1. Sign up to view the full content.
Unformatted text preview: determined this way, but actual inflation turns out to differ from the expected inflation rate. Calculate the actual real interest rate and percentage increase in the real wage for each of the following actual inflation rates: (a) 2%, (b) 5%, and (c) 10%. 5. Suppose Okuns Law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of fullemployment output. The expectationsaugmented Phillips curve is given by 2( 0.05) e u =. Suppose 0.06 = and 0.02 e = . a. What is the natural rate of employment? b. What is the actual rate of unemployment? c. How much is the actual GPD compared to the fullemployment GDP?...
View Full
Document
 Summer '07
 J Liu
 Inflation, Unemployment

Click to edit the document details