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Questions › DSE › DSE 2012 › Q56
2 marksMacroeconomics › Inflation, unemployment and the Phillips curve › The natural rate of unemployment and NAIRUHardabout 4 min

DSE 2012 Question 56: Inflation, unemployment and the Phillips curve

Now suppose the workers productivity increases at a constant rate γ\gammaγ, that is, At−At−1At−1=γ\dfrac{A_{t}-A_{t-1}}{A_{t-1}}=\gammaAt−1​At​−At−1​​=γ. To maintain a non-accelerating inflation rate, rate of unemployment has to increase at the rate

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Now suppose the workers productivity increases at a constant rate γ, that is, (Aₜ-Aₜ₋₁)/Aₜ₋₁=γ. To maintain a non-accelerating inflation rate, rate of unemployment has to increase at the rate (A) γ (B) μ (C) μ+γ (D) (μ/(1+μ))γ

Also written as: Now suppose the workers productivity increases at a constant rate gamma, that is, (A_t-A_(t-1))/(A_(t-1))=gamma. To maintain a non-accelerating inflation rate, rate of unemployment has to increase at the rate

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.

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Question from the DSE 2012 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.