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Questions
FA25 ECON 302 002 Midterm Exam #3 (Chapters 7-9): Sample Questions
Single choice
Taken together, the Phillips curve and Okun’s law imply there is a short-term ________ relationship between ________ and inflation.
Options
A.positive; interest rates
B.positive; unemployment
C.negative; interest rates
D.negative; unemployment
E.Not enough information is given.
View Explanation
Standard Answer
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Approach Analysis
Question restatement: Taken together, the Phillips curve and Okun’s law imply there is a short-term ________ relationship between ________ and inflation.
Option 1: 'positive; interest rates' — This pairing would suggest that inflation has a positive short-term relationship with interest rates. However, neither the Phillips curve nor Okun’s law directly link inflation to interest rates in that way; the Phillips curve relates inflation to unemployment, and Okun’s law relates unemployment to GDP/output, not interest rates. Thus this option mischaracterizes th......Login to view full explanationLog in for full answers
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An open economy is fully characterized by the following IS curve, monetary policy rule, and Phillips curve: IS: 𝑌 ~ 𝑡 = 𝑎 ¯ − ( 𝑏 ¯ 𝑖 + 𝑏 ¯ 𝑛 𝑥 ) ( 𝑅 𝑡 − 𝑟 ¯ ) + 𝑏 ¯ 𝑛 𝑥 ( 𝑅 𝑡 ∗ − 𝑟 ¯ ) , where 𝑅 𝑡 ∗ is the real interest abroad, 𝑎 ¯ = 𝑎 ¯ 𝑐 + 𝑎 ¯ 𝑖 + 𝑎 ¯ 𝑔 + 𝑎 ¯ 𝑛 𝑥 − 1 , and 𝑎 ¯ 𝑛 𝑥 = 𝑎 ¯ 𝑒 𝑥 − 𝑎 ¯ 𝑖 𝑚 . Monetary policy rule: 𝑅 𝑡 − 𝑟 ¯ = 𝑚 ¯ ( 𝜋 𝑡 − 𝜋 ¯ ) Phillips curve: 𝜋 𝑡 = 𝜋 𝑡 − 1 + 𝑣 ¯ 𝑌 ~ 𝑡 + 𝑜 ¯ 𝑡 Assume that 𝑎 ¯ = 0 , 𝑎 ¯ 𝑛 𝑥 = 0 , 𝑏 ¯ 𝑖 = 𝑏 ¯ 𝑛 𝑥 = 0.2 , 𝑣 ¯ = 0.5 , 𝑅 𝑡 ∗ = 0.04 , 𝑟 ¯ = 0.03 , 𝜋 𝑡 − 1 = 𝜋 ¯ = 0.02 , 𝑚 ¯ = 1 , and 𝑜 ¯ 𝑡 = 0.045 . Calculate 𝜋 𝑡 = ______ percent. Round your answer to the nearest tenth of a percent. Note: Calculate your answers for this one and the next three questions in a spreadsheet application. Enter rounded numbers in the answer box for each question. Do not, however, round your intermediate answers in the spreadsheet.
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