Lesson: Inflation, Unemployment and the Phillips CurveInstitute of Lifelong Learning, University of Delhi -A relationship between growth in output and change in unemployment rate is called the Okun’s law-A relationship between inflation, money growth and output growth is called the aggregate demand relation.-Credibility of monetary policy could be defined as the belief by wage setters that central bank was truly committed to reduce inflation. Exercise
Define Phillips curve. 2.Give the reasons for failure of Phillips curve after 1970s. 3.Derive the Phillips curve relation mathematically. 4.Suppose Phillips curve equation is given by: = + 0.1 - 2. Assume = θ . Find NRU. 5.Taking equation in 4thquestion, suppose θ is zero and unemployment rate is equal to NRU. In year ‘t’ unemployment rate is brought down to 3%, what will be inflation rate in years t, t+1, t+2 and t+5?
Define Okun’s Law.7.Derive the aggregate demand relation.
Define nominal money growth in the medium and short-run.
What is Lucas critique? 10.Give some views on credibility and nominal rigidities. References1.Olivier Blanchard, Macroeconomics, Worth publishers, 4thedition 2.CLF Attfield, D. Denery & N.W. Duck (1991. 2ndedition)