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 Okun’s 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 π =. 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?...
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This note was uploaded on 04/15/2010 for the course ECON 291 taught by Professor J liu during the Summer '07 term at Simon Fraser.
 Summer '07
 J Liu
 Inflation, Unemployment

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