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Econ 110A Ch 9 Homework Questions Please, do not use a calculator or any other devices such as cell phones or computers. 1.Consider the Okun's law relation: u t - u t-1 = -β(g yt – 3%). The magnitude of β is typically A. greater than one. B. equal to one. C. less than one. 2. The reason for the answer to question 1 is A. labor hording. B. productivity increase. C. natural unemployment For questions 3-4, consider the three equations: u t - u t-1 = -.5(g yt – 3%), π t - π t-1 = -(u t - u n ), and g yt = g mt - π t. Assume that at t = 0, the economy is in the medium-run equilibrium with g y = 3%, u n =5%, π =4%, g m = 7%, and real money growth rate= g m - π =3%. Assume that at t=1, the Fed sets the real money growth rate at g m - π = 1%. 3. What is the unemployment rate at t = 1? A. 5%. B. 6%. C. 6.5%. D. 7%. E. 7.5%. F. 8%. 4. What is the inflation rate at t = 1? A. 3%. B. 3.5%. C. 4%. D. 4.5%. E. 5.5%. F. 6.5%. ……………………………………………………………………………………………………….
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Unformatted text preview: 5. One implication of the Lucas critique is that A .it takes a long time for a reduction in money growth to reduce the inflation rate. B. unemployment rate actually does not have to be higher to lower inflation. C. unemployment will always be above its natural rate in the short run. D. the sacrifice ratio should be relatively high. 6. If money growth in period t is 6% and inflation in period t is 1%, A. output growth is 5% in period t. B. u t > u n. C. u t < u n D. the inflation rate will decrease in the next period. E. the inflation rate will increase in the next period 7. The normal growth rate of output A. equals zero. B. is positive. C. has increased over time. D. has decreased over time. 8. Explain the reason for the answer to question 3. Answer Key 1. C. 2. A 3. B 4. A 5. B 6. A. 7. B 8. At t = 1, g y = g m- π = 1%. Then, u t- u t-1 = -.5(1 – 3%) = 1 u t = u t-1 + 1 = u n + 1 = 5 + 1 = 6%....
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This note was uploaded on 09/29/2010 for the course ECON 110A taught by Professor Laboskey during the Summer '08 term at Alabama.

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