Practice+Exercises+for+the+final

Practice+Exercises+for+the+final - UCI Prof El Hag-Econ...

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UCI Prof El Hag-Econ 100C Practice Exercises for the Final 1. Assume that expected inflation is based on the following: π e t = θπ t-1 . An increase in θ will cause: a. an increase in the natural rate of unemployment b. a reduction in the natural rate of unemployment c. no change in the natural rate of unemployment d. inflation in period t to be more responsive to changes in unemployment in period t ANS C 2. For this question, assume that the Phillips curve equation is represented by the following: π t - π t-1 = ( μ + z) - α u t . Which of the following will NOT cause an increase in the natural rate of unemployment? a. a reduction in μ b. a reduction in z c. an increase in α d. an increase in the expected rate of inflation e. all of the above ANs D 3. At the current level of output, suppose the actual price level is greater than the price level that individuals expect (i.e., P t > P e t ). We know that: a. output is currently below the natural level of output b. the interest rate will tend to rise as the economy adjusts to this situation c. the nominal wage will tend to decrease as individuals revise their expectations of the price level
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Practice+Exercises+for+the+final - UCI Prof El Hag-Econ...

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