Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output
The expectations-augmented Phillips curve is given by
? = ?e - 2.5 (u - 0.04).
Suppose ? = 0.08 and ?e = 0.03.
(a) What is the natural rate of unemployment?
(b) What is the actual rate of unemployment?
(c) How much is actual GDP compared with full-employment GDP?
(a) 0.04
(b) 0.02
(c) 4% higher
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Consider a diagram in which the variable measured on the y-axis remains constant while the variable measured on the x-axis increases. The graph is of this relationship is a
A) perpendicular line. B) line with slope equal to zero. C) line that has positive slope. D) line that has a negative slope.
When some forms of money start to pay interest, then along with a rise in real output it takes a ________ rise in the market interest rate than before to hold the demand for money equal to its supply, which is to say that the LM curve has become
________. A) larger, steeper B) larger, flatter C) smaller, steeper D) smaller, flatter