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Question 2: Illustrate the effects of the following developments on both the short run and long run Phillips curves. Give the economic reasoning underlying your
Question 2: Illustrate the effects of the following developments on both the short run and long run Phillips curves. Give the economic reasoning underlying your answer. a. A rise in natural rate of unemployment c. A decline in the price of imported oil b. A rise in government spending d. A decline in expected inflation.Question 3: Suppose the Phillips curve equation is given as: u=6 - 15 (1 - I') which is equivalent to: Unemployment rate = Natural rate of unemployment - a (actual inflation - expected inflation) a. Based on the above Phillips curve, what is the natural rate of unemployment? b. Suppose n = 6% and i" = 2%. What is the actual rate of unemployment? c. Continue from part b) and given than Okun's Law holds which states that 1% increase in unemployment rate reduces output by 2% of the full employment output, how much is the actual GDP compared to the full employment GDP
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