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Unformatted text preview: METU Department of Economics Econ 202 Macroeconomic Theory Instructors: Ebru Voyvoda and irin Saraolu Teaching Assistant: Gizem Koar 20072008 Spring Semester Problem Set 7 (OB Chapter 8 and 9) Part A. True/False/Uncertain? Explain 1. In the medium run, positive nominal money growth always leads to inflation. 2. If expected inflation is well approximated by last years inflation then unemployment is above its natural rate leads to an increase in inflation. 3. Changes in the rate of growth of money have no effect on output or unemployment in the medium run, but are reflected one for one in changes in the rate of inflation. 4. Disinflations typically lead to higher unemployment for some time. 5. Faster disinflations are associated with smaller sacrifice ratios. 6. The Phillips curve relation implies that when output is below its natural level, the inflation rate increases. 7. If Lucas and Sargent were right, it would be possible to decrease inflation without an increase in unemployment. 8. Taylors analysis of staggered wage contracts makes the case for a slow approach to disinflation, but the traditional Phillips curve analysis implies the opposite. 9. The more indexed wages are, the lower is the sacrifice ratio....
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