lecture 7

Question 1

price and wage spiral

Answer 1

low unemployment leads to increasing nominal wages and a higher general price level, therefore workers demand higher wages. There is then a further increase in prices and it repeats.

Question 2

expectation augmented PC curve

Answer 2

shows a permanent trade off between inflation and unemployment rate

Question 3

NARU and inflation

Answer 3

when the unemployment rate exceeds the NARU, inflation decreases. When it is below NARU, inflation increases.