Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output. The expectations-augmented Phillips curve is given by ? = ?e - 2.5 (u - 0.04).Suppose ? = 0.08 and ?e = 0.03.(a)What is the natural rate of unemployment?(b)What is the actual rate of unemployment?(c)How much is actual GDP compared with full-employment GDP?
What will be an ideal response?
| (a) | 0.04 |
| (b) | 0.02 |
| (c) | 4% higher |
You might also like to view...
The debt service ratio is defined as
(a) the ratio of total debt to export earnings. (b) the ratio of total debt to GDP. (c) the ratio of payments on foreign debt to export earnings. (d) the ratio of payments on foreign debt to GDP.
Traffic congestion represents
a. A positive network externality b. A negative network externality c. A Bandwagon effect d. Neither a positive nor a negative externality snob effect; congestion
Which of the following would happen as the wage rate gradually adjusts following a shock?
a. Nothing will change b. A shift of the production possibilities frontier c. A shift in the short-run aggregate supply curve d. A shift in the aggregate demand curve e. A shift in the long-run aggregate supply curve
In the classical model,
a. markets do not automatically clear. b. business demand for loanable fund exceeds business planned investment spending. c. business demand for loanable fund is equal to business planned investment spending. d. businesses engage in interest-free borrowing. e. the government's demand for funds is downward sloping.