Homework answers / question archive /  Phillips Curve Part II (20pts) Recall that we derived the Phillips Relation from the Labor Market Equilibrium as follows: At = TE + (m+z) – aut Answer the following questions: 1a

 Phillips Curve Part II (20pts) Recall that we derived the Phillips Relation from the Labor Market Equilibrium as follows: At = TE + (m+z) – aut Answer the following questions: 1a

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 Phillips Curve Part II (20pts) Recall that we derived the Phillips Relation from the Labor Market Equilibrium as follows: At = TE + (m+z) – aut Answer the following questions: 1a. (3pt) Before 1960, inflation was positive in some years and negative in others; on average, it was around zero. What is a reasonable expectation formation for inflation in this period? 1b. (3pt) Combine your expectation formation in 1a) and the Phillips Relation to get the relationship between the inflation rate and the unemployment rate. 1c. (3pt) Describe the wage-price spiral. 1d. (3pt) After the 60s, the inflation rate was maintained above zero. Would the expectation formation you wrote in 1a) still be a reasonable assumption? Why? 1e. (3pt) Which expectation formation is used for Accelerationist Phillips Curve? 1f. (3pt) Let Accelerationist Phillips Curve be it – Tt-1 = 3.3% – 0.55ut. Suppose this is true, and the unemployment rate in 2019 is 6%. Also, the inflation rate in 2018 is 2%. What is the inflation rate in 2019? m+2 1g. (2pt) Recall that the natural rate of unemployment is un = Suppose the estimated natural rate of unemployment rate is 5%, and m= 0.05, z = 0.05. What is the parameter a.