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What is the assumption of adaptive expectations

Assignment Help Macroeconomics
Reference no: EM131904867

Intermediate Macroeconomics Assignment

Questions of the special topics:

1. Write down the modern Phillips Curve equation and explain what each term means. Which tradeoff is captured by the Phillips Curve? Draw a graph showing this tradeoff i.e. draw the Phillips curve.

2. Define demand-pull inflation. What condition in the Phillips Curve equation needs to be satisfied to characterize inflation as demand-pull?

3. According to the Phillips Curve equation, what is the expression for inflation rate when cyclical unemployment is zero?

4. What is the assumption of Adaptive Expectations? How do you modify the Phillips Curve equation to incorporate Adaptive Expectations?

5. "The credibility of a policy to reduce inflation is therefore one determinant of how costly the policy will be". Explain this statement in the view of the Rational Expectations hypothesis.

6. Write the Taylor Rule proposed for targeting real interest rates. Interpret its parameters.

7. Define Ricardian equivalence. According to Ricardian equivalence, when would consumers raise their consumption as a response to a tax cut?

Text Book: MACROECONOMICS by N. GREGORY MANKIW, NINTH EDITION.

Reference no: EM131904867

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