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An economy has the following eqn for the Phillips Curve: pi=Epi - .5(u-6) People form expectations of inflation by taking a weighted average of the previous 2 years of inflation: Epi=0.7pi-1 + 0.3pi-2 Okun's law for this economy is: (Y-Y1)/Y-1 = 3.0-2.0 (u-u-1) The economy begins at its natural rate of unemployment with a stable inflation rate of 5 percent. (A) what is the natural rate of unemployment for this economy? (B) Graph the short-run tradeoff between inflation and unemployment that this economy faces. Label the point where the economy begins as point A (C) A fall in aggregate demand leads to a recession, causing the unemployment rate to rise 4 percentage points above its natural rate. On your graph in part (A) label the point the economy experiences that year as point B. (D) Unemployment remains at this high level for two years (the initial year described in point (C) and one more), after which it returns to its natural rate. Create a table showing unemployment, inflation, expected inflation, and output growth for 10 years beginning 2 years after the recession. (E) on the same graph in part (B), graph the SR tradeoff the economy faces at the end of this 10-yr period. Label the point where the economy finds itself as point C. (F) Compare the equilibrium before the recession with the new long-run equilibrium. How much does inflation change? How many percentage points of output are lost during the transition? What is this economy's sacrifice ratio?
Why does it make sense for a firm to shut down in the short run if the price falls below minimum average variable cost?
Illustrate what is the ability to pay principle in public Fiance also what are some of the problems implementing it.
Given this information, evaluate the following statement: Airlines could have the same effect on demand by eliminating their frequent flyer programs and simply lowering the average ticket price by 10 percent.
what is the least-cost input-combination of labor and capital and how much output is produced with that set of resources?
Think about all the economic data that are reported in the news every day. The information from all of them may be relevant, but does a policymaker really need to know any more about the state of the economy than the level of output and the inflation..
The current population of the United States is 318.9 million with 3% of the population is engaged in R&D at an efficiency rate of 1/500 per million persons per year. If R&D is the only source of total-factor productivity growth what is the growth rat..
The total operating revenues of a public transportation authority are $100 million while its total operating costs are $120 million. The price of a ride is $1 and the price elasticity of demand for public transportation has been estimated to be -0.4...
One of the central ideas taught in econonimics is that fixed costs are sunk costs, and that fixed cost are irrelevant to current decision making. Show why this true through the use of calculus and the idea of profit-maximization.
You can suppose any single peaked preference which you want and Characterize the equilibria of the model.
The Lorenz curve is criticized for all of the following EXCEPT
The size of the market will help determine which of the following factors:
Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.9 in each country. Country A decides to increase spending by $2 billion, while Country B decides to cut taxes by $2 billion. Find the tax..
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