MGEC06H3 Midterm: MGEC06-Sample Test1.pdf
19 Jun 2014
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Page 2 of 13: [12 points)] assume that an economy"s production function is y = 2000l1/2. Suppose the labor supply curve is given by ls = 15,625(w/p). Show the impact of the contractionary monetary policy on the prices and unemployment (a) assuming prices/wages are sticky in the short term such that e is fixed (b) assuming rational expectation. n uu e. Page 5 of 13 and that the natural rate of unemployment is given by the average of the past two years" unemployment: u n (5. 0 u. 2: [10 points] suppose canadian economy follows the phillips curve. 1 nuu : has been historically at 8%. Problem-2: [20 points] consider an economy in its long-run equilibrium with an inflation rate, , of 8% per year and a natural unemployment rate, un, of 4%. Assume that okun"s law holds so that a 1% increases in the unemployment rate maintained for one year reduces output by 2% of full-employment output.
