Please explain how to do this The Phillips curve, Unemployment and Inflation Sup

Question

Please explain how to do this

The Phillips curve, Unemployment and Inflation Suppose that the Phillips curve is given by pi t = + 0.1 - 2ut Assume = theta pi t-2 and suppose that theta is now equal to 1. Suppose that inflation in year t-1 is zero. In year t, the authorities decide to keep the unemployment rate at 3% forever. What is the natural rate of unemployment? Then please verify that pi t - = -2(ut - 0.05). Compute the inflation for years t, t+1 and t+2. According to the concept of NAIRU, what should be the rate of unemployment in order to keep inflation unchanged in the following years?

Explanation / Answer

piet = 0.1 - 2*0.03 = 0.04

piet+1e = 0.04

piet+1 = 0.04 + 0.1 - 2*0.03 = 0.08

piet+2e = 0.08

piet+2 = 0.08 + 0.1 - 2*0.03 = 1.12

piet+3e = 1.12

piet+3 = 1.12 + 0.1 - 2*0.03 = 1.16

piet+4e = 1.16

piet+4 = 1.16 + 0.1 - 2*0.03 = 2.00

-2(0.03-0.05) = 0.04

piet+1 - piet+1e = 0.08-0.04 = 0.04

piet+2 - piet+2e = 1.12-0.08 = 0.04

According to the concept of NAIRU(

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---