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

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Middle East Technical University Fall, 2011 Department of Economics ECON 202 Dr. Pınar Derin-Güre Name___________________________________ Due Date: Tuesday, December 15 , 2011 THURSDAY (in class) . No late problem sets will be accepted. Note: Please keep your answers short ! In most cases one or two sentences will be more than enough. If your answers are too long or contain obviously irrelevant information you may incur a penalty, i.e. brevity in your responses is strongly recommended. If you would like, you may work in small groups of 2-4 people to discuss the problem sets. However, you must write up answers individually. If you decide to work in a group, please list the names of the group members on your problem set. A note on academic integrity: As the syllabus clearly states, work that you hand in should be your own work: “A student shall not submit work […] that is not the result of the student’s own effort.” Please show your work for full credit on analytical questions, i.e., show the formulas, calculations (if appropriate). Do not report only the final answers for the essay questions. MULTIPLE CHOICE ANSWERS WILL BE HANDED IN USING THE OPTICAL FORMS. I WILL HAND IN THE EMPTY OPTICAL FORMS IN CLASS ON TUESDAY. This Problem Set covers material from Chapters 8, 18, 19, 20 in Blanchard. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the Phillips curve equation, which of the following will NOT cause a reduction in the current inflation rate? 1) _______ A) an increase in the unemployment rate B) a reduction in the expected inflation rate C) an increase in the markup, m D) all of the above E) none of the above 2) Which of the following statements will likely be correct when inflation has not been very persistent? 2) _______ A) The expected price level for a given year will equal the previous year's actual price level. B) Lower unemployment rates will be associated with higher inflation rates. C) The current inflation rate will not depend heavily on past years' inflation rates. D) all of the above E) none of the above 3) For this question, assume that the Phillips curve equation is represented by the following equation: π t - π t - 1 = + z) - αu t . Given this information, the natural rate of unemployment will be equal to: 3) _______ A) + z - α). B) α(μ + z). C) 0. D) μ + z. E) none of the above PROBLEM SET 4
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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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