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4. {10 points} Consider the ination and unemployment data in the table below for the United States between 1990 and 2005. Naomi Rate Unemploymem Unemployment

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4. {10 points} Consider the ination and unemployment data in the table below for the United States between 1990 and 2005. Naomi Rate Unemploymem Unemployment Year U Un Inlaion 1590 5.5 5.1 5.4 1551 5.9 5.4. 4.2 1592 "3.5 5.5 3.0 1593 5.9 5.4 3.0 1594 5.1 5.2 2.5 1595 5.5 5.3 2.5 1595 5.4 5.4 3.0 1357 4.9 5.0 2.3 1955 4.5 4.5 1.5 155! 4.2 4.5 2.2 econ 4.5 4.5 3.4 m1 4.? 4.5 2.5 m 5.5 4.9 1.5 21103 5.5 5.0 2.3 m 5.5 5.1 2.? m 5.1 5.2 34 'i'ou may assume that Okun's Lani:I holds true lie. 1% of unemployment is approximately equal to 2% of lost output}. Recall that the sacrice ratio is calculated as: Econ 736 Analytical Assignment #3 Lost Output Sacrice Ratio = A Ination Using the data above. calculate the sacrifice ratio for the US economy between the 1990-2005 period {overall}. What value would the sacrifice ratio be under adaptive expectations? What value would it be under rational expectations? Based on the answer you calculated above. can you say anything about whether people in the economy torrn expectations based on rational expectations or adaptive expectations? [Note: you do not have to calculate the value of the sacrice ratio under adaptive or rational expectations here; rather, you may simply state what values they would he.]

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