20082prbset8 - METU Department of Economics Econ 202...

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1 METU Department of Economics Econ 202 Macroeconomic Theory Instructors: Ebru Voyvoda Şirin Saraçoğ lu Teaching Assistant: Pelin Akçagün, Gizem Koşar, Özlem Tonguç, Sezer Yaş ar 2008-2009 Spring Semester Part A: Problems Question 1: Problem Set 8 (OB Chapter 9)
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2 Question 2: Question 3: The following information is given for a hypothetical economy: The effect of output growth above normal on the change in the unemployment rate (β) is 0.5. The normal growth rate of the economy ( y g ) is 4%. The sensitivity of wage to unemployment is 2.
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3 The mark-up rate is 3% The catchall variable z that stands for all the factors that affect wages given the expected price level and the unemployment rate is measured as 0.02. Consider the case where π e t = π t-1. a) Derive the expression that represents the Okun’s Law. b) Derive the Phillips curve as a relationship between the actual unemployment rate, the natural unemployment rate and the change in the inflation rate.
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