Chapter 9

Question 1

b^

Answer 1

λb/1-λ

Question 2

Phillips curve wage adjustment

Answer 2

ΔWtd/Wt-1 = (ΔW^et/Wt-1) -b^(ut-un)

Question 3

Inflation using W and E

Answer 3

π=ΔW/W - ΔE/E

Question 4

Full Phillips curve

Answer 4

π= πe+βY^+z

β=b^*Y/EL

Y^= (Y-Yn)/Yn

Question 5

β

Answer 5

β= b^ Yn/EL

Question 6

Y^

Answer 6

Percentage deviation of production from the natural level, the output gap:

Y^= (Y-Yn)/Yn

Question 7

What causes slow wage and price adjustment

Answer 7

1. Wage and price setters have imperfect information, firms take time to learn about and therefore adjust to shocks
2. Many wage contracts cover periods over a year, and therefore can’t adjust freely
3. Wage and Price changes aren’t fully synchronised, wages and prices change at different points in time