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tutorial5engl - P ROF D R M ICHAEL F UNKE Hamburg 6...

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Unformatted text preview: P ROF . D R . M ICHAEL F UNKE Hamburg, 6. November 2009 D IPL . VW H AO Y U Tutorial 5 „Macroeconomics“ (Winter 2009/10) 1. Credibility and disinflation. Suppose that the Phillips curve is given by ( ) % 5 − − = t e t t u π π And expected inflation is given by 1 − = t e t π π a. What is the sacrifice ratio in this economy? Suppose that unemployment is initially equal to the natural rate and % 12 = π . The central bank decides that 12% inflation is too high and that, starting in year t, it will maintain the unemployment rate 1 percentage point above the natural rate of unemployment until the inflation rate has decreased to 2%. b. Compute the rate of inflation for years t, t+1, t+2, and so on. c. For how many years must the central bank keep the unemployment rate above the natural rate of unemployment? Is the implied sacrifice ratio consist with your answer to (a)? Now suppose that people know that the central bank wants to lower inflation to 2%, but they are not sure about the central bank’s willingness to accept an unemployment rate...
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This note was uploaded on 12/21/2011 for the course ECON 3014 taught by Professor Michaelshaw during the Spring '11 term at HKU.

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tutorial5engl - P ROF D R M ICHAEL F UNKE Hamburg 6...

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