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Suppose that an economy has the Phillips curve p = p-1 - 0.5(u - u^n),and that the natural rate of unemployment is given by an average of the past two years' unemployment:u^n = 0.5(u-1 + u-2).
1) Why might might the natural rate of unemployment depend on recent unemployment (as is assumed in the preceding equation)?
2) Suppose that the Fed follows a policy to permanently reduce the inflation rate by 1 percentage point. What effect will that policy have one the unemployment rate over time?
3) What is the sacrifice ratio in this economy? Explain.
4) What do these equations imply about the short-run and long-run tradeoffs between inflation and unemployment?
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Engineering Economics 6th edition, Mountain Pass Canning Company has determined that any one of four machines can be used in one phase of its canning operation. The costs of the machines are estimated below, and all machines have a 10-year life.
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Suppose the demand for a product is given by P = 30 - 2Q. Also, the supply is given by P = 5 + 3Q. A) What is the equilibrium price and quantity of the product B) What is the price elasticity of demand at the equilibrium price
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