Practice+Exercises+for+Midterm+II-+no+ANS

# Practice+Exercises+for+Midterm+II-+no+ANS - UCI- Spring...

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UCI- Spring 2011 Econ 100 C- Practice Exercises for Midterm II Prof El Hag Please answer the following questions 1. For this question, assume that the Phillips curve equation is represented by the following equation: π t - π t-1 = ( μ + z) - α u t . A reduction in the unemployment rate will cause: a. a reduction in the markup over labor costs (i.e., a reduction in μ ). b. an increase in the markup over labor costs. c. an increase in the inflation rate over time. d. a decrease in the inflation rate over time. e. none of the above. 2.. For this question, assume that the expected rate of inflation is a function of past year's inflation. Also assume that the unemployment rate has greater than the natural rate of unemployment for a number of years. Given this information, we know that: a. the rate of inflation will approximately be equal to zero. b. the rate of inflation should neither increase nor decrease. c. the rate of inflation should steadily increase over time. d. the rate of inflation should steadily decrease. e. the inflation rate will be approximately equal to the natural rate of unemployment. 3.. The original Phillips curve implied or assumed that: a. the markup over labor costs was zero. b. the expected rate of inflation would be zero. c. the actual and expected rates of inflation would always be equal.

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## This note was uploaded on 11/11/2011 for the course ECON 100 taught by Professor Chandle during the Spring '11 term at UC Irvine.

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Practice+Exercises+for+Midterm+II-+no+ANS - UCI- Spring...

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