If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to contractionary monetary policy? Support your answer with a graph of the Phillips curve
What will be an ideal response?
Contractionary monetary policy reduces the inflation rate. With adaptive expectations, workers and firms will overestimate inflation, resulting in an increase in the real wage and an increase in the unemployment rate (move from A to B on the short-run Phillips curve below). Eventually, workers and firms will adjust to the fact that inflation is lower, shifting the short-run Phillips curve down and reducing the unemployment rate to its natural rate (move from B to C in the graph below).
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Labor productivity is calculated as
A) (real GDP ÷ aggregate hours). B) (real GDP ÷ aggregate hours × number of workers). C) (real GDP ÷ number of workers × ratio of capital per worker). D) (real GDP ÷ technology level). E) (real GDP ÷ aggregate hours × number of workers) × 100.
Two cities face identical prices for their housing. City A decided to be a pollution free city "Clean town" and all the factories would locate in city B "Smogville", in equilibrium, we expect to see
a. a compensating differential between the prices of housing between the two cities b. the prices of housing in both the cities to be identical c. The prices of housing in B to be higher d. All of the above
Many economists believe that skill-biased technical change has increased the incomes of both highly skilled workers and low-skill workers
a. True b. False Indicate whether the statement is true or false
If food is on the vertical axis and shelter on the horizontal axis, the slope of the budget line is given by
A. -Ps/Pf. B. -Pf/Ps. C. Pf/Ps. D. Ps/Pf.