Unformatted text preview: Economics 100B
UCSC Professor K. Kletzer
Fall 2008 Problem Set 3
Due at the beginning of lecture, Wednesday, November 5 1. Problem 3, Chapter 9 of Blanchard, p. 199.
2. Problem 7, Chapter 9 of Blanchard, p. 200.
3. Consider the accelerationist Phillips curve,
π t − π t −1 = −α (u t − u n ) ,
and suppose that an oil price shock increases the markup. The unemployment rate
initially equals the natural rate of unemployment.
a. If the central bank keeps the unemployment rate unchanged, then what will
happen to the inflation rate?
b. How does the natural rate of unemployment change? To keep the
unemployment rate equal to the initial unemployment rate what would the central bank
need to do? Explain using the AD curve and Okun’s law in addition to the accelerationist
c. What would be a better policy response on the part of monetary authorities to a
permanent oil price shock? Explain using the three relationships.
4. Problem 7, Chapter 11 of Blanchard, p. 244.
5. Problem 8, Chapter 11 of Blanchard, p. 244.
6. Problem 6, Chapter 12 of Blanchard, p. 264. ...
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