Author Question: Last year, the unemployment rate was 4 percent and the inflation rate was 3 percent. If the natural ... (Read 165 times)

Pea0909berry · **on:** Jun 29, 2018

Last year, the unemployment rate was 4 percent and the inflation rate was 3 percent. If the natural rate of unemployment is 3 percent, how do you expect inflation to change?

What will be an ideal response?

Question 2

If the exchange rate changes from 1.45 = 1 euro to 1.37 = 1 euro, then

A) both the euro and dollar have appreciated.
B) the euro has appreciated and the dollar has depreciated.
C) the euro has depreciated and the dollar has appreciated.
D) both the euro and dollar have depreciated.

rekilledagain · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Inflation is only stable when the unemployment rate is equal to the natural rate of unemployment. Since last year's unemployment rate was above the natural rate of unemployment, the inflation rate will eventually increase as the economy moves up the short-run Phillips curve.

Answer to Question 2

C