Assume okuns law holds also a one percent

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Reference no: EM1319135

Q. Consider an economy in long-run equilibrium with an inflation rate (π) of 0.08 per year also a natural unemployment rate of 0.05. Assume Okun's law holds also a one percent (%)age point rise in the unemployment rate reduces real output by 2% of full-employment output. The expectations-augmented Phillips curve is given by π=πe -2.5(u-0.05). Consider a two-year disinflation. In the first year, π = 0.06 also π e = 0.08. In the second year, π = 0.04 also πe =0.05.

(a) In the first year Illustrate what is the value of the unemployment rate?

(b) In the first year, by Illustrate what percent (%)age does output fall short of full employment output?

(d) In the second year, by Illustrate what percent (%)age does output fall short of full-employment output?

(e) Illustrate what is the sacrifice ratio for this disinflation?

Reference no: EM1319135

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