Problem Set 4

# Problem Set 4 - Middle East Technical University Department...

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4) Use the following Phillips curve equation to answer this question: μ t - μ t - 1 = + z) - αu t . Which of the following will cause an increase in the natural rate of unemployment? 4) _______ A) a reduction in μ B) an increase in α C) an increase in z D) a reduction in expected inflation E) none of the above 5) Assume that expected inflation is based on the following: π e t = θπ t - 1 . If θ = 1, we know that: 5) _______ A) the actual unemployment rate will not deviate from the natural rate of unemployment.
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## This note was uploaded on 01/05/2012 for the course ECON 202 taught by Professor Tunc during the Spring '10 term at Middle East Technical University.

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Problem Set 4 - Middle East Technical University Department...

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