Exercise on the Phillips curve old exam

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1.Macroeconomics of Finance – 25 January 2021 (Prof. A. Florio) Part I Exercise 1 a) Define, both graphically and analytically, the natural rate of unemployment. b) Show graphically and explain the likely effects on price- and/or wage-setting behavior of the following: 1. workers become more worried about losing their jobs at any given level of employment. 2. the government intervenes to protect domestic firms from foreign competition. c) Starting from an initial long-run equilibrium, illustrate the effects of points 1 and 2 above on both the short-run and the long-run Phillips curves. Provide a graph and the economic reasoning underlying your answers. d) Explain carefully all the assumptions that are being made in the claim that ‘disinflation is costly’. Provide a graph and the economic reasoning underlying your answer. e) On 12 December 2020 the Economist published an article where you can read: “(…) at the end of the 2000s, when post-financial-crisis stimulus packages increased government debt prodigiously, and “quantitative easing” (…) started to hit its stride (…) many worried that the stage seemed set for prices to surge in a way which had not been seen for a generation.” As far as you know, was a price surge a problem after the Great Recession? Motivate your answer.