a) Define Philips curve. (2 marks) b) Suppose an economy has the following Philips curve: ...

 

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a) Define Philips curve. (2 marks) b) Suppose an economy has the following Philips curve: π = -0.5(u - 0.06). Where; , is the rate of inflation at time t, and u is the rate of unemployment. What is the natural rate of unemployment in this economy? (4 marks) How much of cyclical unemployment is necessary to reduce inflation by 5% points? i) ii) (2 marks) iii) Calculate the sacrifice ratio in the above (i) and (ii) case. (2 marks) c) Discuss the main macroeconomic policy objectives that any responsible government would strive to achieve. (10 marks) a) Define Philips curve. (2 marks) b) Suppose an economy has the following Philips curve: π = -0.5(u - 0.06). Where; , is the rate of inflation at time t, and u is the rate of unemployment. What is the natural rate of unemployment in this economy? (4 marks) How much of cyclical unemployment is necessary to reduce inflation by 5% points? i) ii) (2 marks) iii) Calculate the sacrifice ratio in the above (i) and (ii) case. (2 marks) c) Discuss the main macroeconomic policy objectives that any responsible government would strive to achieve. (10 marks)

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a The Phillips curve is an economic concept that describes the inverse relationship between inflation and unemployment in an economy It suggests that there is a tradeoff between the two variables indi... View the full answer