5 suppose that the phillips curve is given by t t m z

5. Suppose that the Phillips curve is given by
, = + ( + ) −
t
t
m z u
where
= (1 − ) +
e
t
t − 1
Suppose that m %, z %, , and = 1. = 1 = 2
Given this information, write out the equation for the change
in the inflation rate as a function of the unemployment rate.
1
2
3
4
5
6
7
8
9
10
Change in inflation
t
= 0.6
The change in the inflation rate as a function of the
unemployment rate can be written as: .
( Write out the equation and substitute in the information
given. Do not include the percent sign in your equation. )
(Properly format your expression using the tools in the
palette. Hover over tools to see keyboard shortcuts. E.g., a
subscript can be created with the _ character.)
On the axes provided on the right, graph the equation for the
change in the inflation rate as a function of the
unemployment rate that you found above.
1.) Using the line drawing tool, graph the change in the
inflation rate as a function of the equation for the
unemployment rate that you found above. Be sure to start
your line on the y -axis.
Carefully follow the instructions above and only draw the
required object.
Using the graph, if were to , then the line would
________.
decrease
A. shift down but stay parallel to the original
curve.
B. keep the same y -intercept and rotate
becoming
up
flatter
C. keep the same y -intercept and rotate
, becoming . down steeper
D. shift up but stay parallel to the original
curve.
,
.
1 2 3 4 5 6 7 8 9 10
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Change in inflation
Unemployment rate

5/7/2020 Ch 8-Aticha Wangbunyen
6. Watch the video , and then answer the question below.
Professor Blanchard discusses the effects of the slowdown in growth. He notes that it is "striking" that this slowdown has
not come with a decrease in inflation - a result that should occur based on the predictions of the Phillips curve. Which of the
following is the explanation provided by Professor Blanchard for why inflation has not fallen as output growth has fallen?
1
4/8
7. Suppose that the Phillips curve is given by
= + 0.1 − 2
t
t
u
Given this equation find the natural rate of unemployment.
The natural rate of unemployment is %. ( Enter your response as an integer .)
Assume that
= (1 − ) +
e
t
t − 1
and suppose that is initially equal to 0 and = and does not change. Suppose that the rate of unemployment is
initially equal to the natural rate. In year t, the authorities decide to bring the unemployment rate down to 3% and hold it
there forever.
0.02
In year ( t + 1), the inflation rate will be %. ( Enter your response as an integer
In year ( t + 2), the inflation rate will be %. ( Enter your response as an integer
In year ( t + 5), the inflation rate will be %. ( Enter your response as an integer .)
This expectations structure is probably not realistic because it implies that
1: http://
t
.)
.)