Practice Exam Exercises for Chapter 8_key

# Practice Exam Exercises for Chapter 8_key - b. each 1% drop...

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BEcon 301 Practice EXAM Exercises for Chapter 8 1. u t < u n ; when u is below the natural rate, there is pressure for wages to increase. As wages increase, inflation will increase above expected. 2. u t > u n ; when u is above the natural rate, there is pressure for wages to decrease. As wages decrease, inflation will decrease below expected. 3. u t = u n ; The labor market is in equilibrium. 4. If u is kept below the natural rate, inflation will increase over time. 5. If u is kept above the natural rate, inflation will fall over time. 6. See textbook/class notes. 7. See textbook/class notes. 8. See textbook/class notes. 9. See textbook/class notes/Power Point Slides. 10. a. 5.5%, 7%, 8.5% and 10%;
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Unformatted text preview: b. each 1% drop in u causes inflation to increase by 1.5%; c. As u falls the inflation rate increases; 11. An increase in oil prices will cause an increase in the markup and cause the PS curve to shift down. This will cause an increase in the natural unemployment rate and a reduction in the equilibrium real wage. If, however, workers accept the drop in the wage we will observe a downward shift in the WS curve; this would be represented formally as a drop in the catchall variable z. In this case, the equilibrium real wage will fall, but there will be no change in the natural rate of unemployment. 1...
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## This note was uploaded on 12/22/2011 for the course MACROECON 301 taught by Professor Christinanagy during the Fall '09 term at University of Washington.

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