DSE 2012 Question 52: Inflation, unemployment and the Phillips curve
Setup, from Q51 of the paper:
Consider an economy where the nominal wage rate is set by wage bargaining before production. The nominal wage Wt=PteF(ut,At) with Fu<0,FA>0; producers set price as a constant markup Pt=(1+μ)Wt; inflation πt=Pt−1Pt−Pt−1 and expected inflation πte=Pt−1Pte−Pt−1. Which of the following equations represents the relationship between expected rate of inflation and actual rate of inflation?
Suppose the average productivity of workers remains constant at a level A. Given the relationship in previous question, which of the following equations defines the 'natural rate of unemployment'?
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Setup, from Q51 of the paper: Consider an economy where the nominal wage rate is set by wage bargaining before production. The nominal wage Wₜ=Pₜ^eF(uₜ,Aₜ) with Fᵤ<0,F_A>0; producers set price as a constant markup Pₜ=(1+μ)Wₜ; inflation πₜ=(Pₜ-Pₜ₋₁)/Pₜ₋₁ and expected inflation πₜ^e=(Pₜ^e-Pₜ₋₁)/Pₜ₋₁. Which of the following equations represents the relationship between expected rate of inflation and actual rate of inflation? Suppose the average productivity of workers remains constant at a level A̅. Given the relationship in previous question, which of the following equations defines the 'natural rate of unemployment'? (A) F(uₜ,A̅)=μ (B) F(uₜ,A̅)=1/(1+μ) (C) F(uₜ,A̅)=μ/(1+μ) (D) None of the above
Also written as: Setup, from Q51 of the paper: Consider an economy where the nominal wage rate is set by wage bargaining before production. The nominal wage W_t=P_t^eF(u_t,A_t) with F_u<0,F_A>0; producers set price as a constant markup P_t=(1+mu)W_t; inflation pi_t=(P_t-P_(t-1))/(P_(t-1)) and expected inflation pi_t^e=(P_t^e-P_(t-1))/(P_(t-1)). Which of the following equations represents the relationship between expected rate of inflation and actual rate of inflation? Suppose the average productivity of workers remains constant at a level A_bar. Given the relationship in previous question, which of the following equations defines the 'natural rate of unemployment'?
Inflation, unemployment and the Phillips curve has come up 106 times in 7 exams since 2006.
What this question tests
This question is on The natural rate of unemployment and NAIRU, part of Inflation, unemployment and the Phillips curve in Macroeconomics.
The unemployment rate consistent with stable inflation and what determines it.
TestStop has 19 past-paper questions on this subtopic.
