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Q. Consider an economy in long-run equilibrium with an inflation rate (π) of 0.08 per year also a natural unemployment rate of 0.05. Assume Okun's law holds also a one percent (%)age point rise in the unemployment rate reduces real output by 2% of full-employment output. The expectations-augmented Phillips curve is given by π=πe -2.5(u-0.05). Consider a two-year disinflation. In the first year, π = 0.06 also π e = 0.08. In the second year, π = 0.04 also πe =0.05.
(a) In the first year Illustrate what is the value of the unemployment rate?
(b) In the first year, by Illustrate what percent (%)age does output fall short of full employment output?
(c) In the second year Illustrate what is the value of the unemployment rate?
(d) In the second year, by Illustrate what percent (%)age does output fall short of full-employment output?
(e) Illustrate what is the sacrifice ratio for this disinflation?
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