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1. Olivier Blanchard has referred to a "natural rate of unemployment," a "structural rate of unemployment," a "natural level of output," and a "level of potential output." Perhaps the most precise usage of a term like this is found in what he calls "the non-accelerating inflation rate of unemployment." How does he calculate a formula for this "NAIRU"? In Blanchard's IS-LM-PC model, if the actual rate of unemployment differs from the NAIRU, there is no "natural" tendency for the economy to return to a level of output consistent with the NAIRU. Explain why. In this model, however, monetary policy can return us to the NAIRU and to any unchanging level of inflation we want. How?
2. In the Phillips Curve (equation [2]) in Laurence Meyer's "Monetarism Without Money" model, the actual rate of inflation is governed by the output gap, past inflation, and expected future inflation. How does the inclusion of past inflation capture the role of sticky wages and prices in the short run? Here he must really be talking about sticky rates of growth of wages and prices. Still, we ought to be able to apply the New Keynesian explanations of sticky wages and prices to this. What are the New Keynesian explanations of sticky wages and prices? Why did John Maynard Keynes say that sticky wages and prices are not necessary to have involuntary unemployment?
In "Nine Challenges of Alternative Energy" (pp. 386-397), David Fridley argues that the growing cost of and demand for energy, along with the growing concerns of the global climate, leaves us facing, not just a need to explore alternative energy opti..
Consider a low wage labor market. Workers in this market are not presently covered by the minimum wage, but the government is considering implementing such legislation. If implemented, this law would require employers in the market to pay workers a $..
Assume quantity theory of money holds with constant K and Kf. Suppose Mexico wants to stabilize the exchange rate of its currency with US dollar (dollars/peso). If US is running a 5% inflation rate solely due to the increase of money supply, what is ..
What are the advantages and disadvantages of the installation methods our book describes?
Suppose an individual has the following utility function defined over wealth: U = U(√wealth). The individual has an initial wealth level of $20,000. What is the expected loss? What is the maximum amount this individual is willing to pay for insurance..
Remember the warm up activity in the first section of this unit? You were instructed to find an article that discusses the current state of the U.S. economy. Take this article (or one similar to it) and write a two- to three-paragraph summary of the ..
The GDP deflator is a good cost of living index. GDP is more volatile in the short-run than the long-run. All government spending is in GDP. If GDP is adjusted for purchasing power, the US usually improves its relative position.
Why are indifference curves convex to the origin? Explain what Marginal Rate of Substitution (MRS) means? When wouldindifference curves be linear, vertical or horizontal?
Ear Us production function is Q=KL. The company over the years uses input rates of 60 and 75 for capital and labour respectively. The price of capital is $40 and labour is $35 per ear phone. If $58000 is allocated to production, what is the maximum o..
Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Calculate each country's productivity and real GDP per person
Which of the following payment plans does NOT give an incentive to a manager to stop shirking?
Illustrate what or considerations may be taken into account in order to make a decision on implementation of policy.
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