Question 1 (5 marks) Explain how the original Phillips curve differs from the expectations-augmented Phillips curve (or the modified, or accelerationist Phillips curve). Question 2 (5 marks) Explain...

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Question 1 (5 marks)
Explain how the original Phillips curve differs from the expectations-augmented Phillips curve (or the modified, or accelerationist Phillips curve).
Question 2 (5 marks)
Explain what effect a decrease in the future expected interest rate will have on the IS curve and LM curve in the current period.
Question 3 (5 marks)
Suppose the interest parity condition holds. Also assume that the one-year interest rate in Australia (home country) is 6% and that the one-year interest rate in Canada (foreign country) is 6%. What does this imply about the current versus future expected exchange rate (for the Australian and Canadian dollars)? Explain.
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Answer each question in approximately XXXXXXXXXXwords plus diagrams where applicable. No penalty will be applied if your answers do not conform to this word length guide. Your attention is drawn to the statements on rationale and marking criteria provided in the Subject Outline.Question 1 (5 marks)Explain how the original Phillips curve differs from the expectations-augmented Phillips curve (or the modified, or accelerationist Phillips curve).Question 2 (5 marks)Explain what effect a decrease in the future expected interest rate will have on the IS curve and LM curve in the current period.Question 3 (5 marks)Suppose the interest parity condition holds. Also assume that the one-year interest rate in Australia (home country) is 6% and that the one-year interest rate in Canada (foreign country) is 6%. What does this imply about the current versus future expected exchange rate (for the Australian and Canadian dollars)? Explain.RationaleThe discipline of economics (and the sub discipline of finance) consists of a body of learning involving five main elements.The first element is observation of economic phenomenon in the world about us. The second element is the development of theory to explain our observations. The third element is the testing of the theory developed through the collection of evidence. The fourth element is the statement of principles based on the conclusions we derive from the testing of theory. The final element is the application of economic principles through actions designed to impact on future observations.A short answer or problem question, involving at least one of the elements of the discipline, assesses the student’s understanding by requiring the student to construct a correct response to the question.Marking criteriaThe correctness of your responses to each question will determine your mark for Part A of Assignment2.

Answered Same DayDec 20, 2021

Solution

Robert answered on Dec 20 2021
3 Votes
Answer each question in approximately 50-150 words plus diagrams where applicable. No
penalty will be applied if your answers do not conform to this word length guide. Your
attention is drawn to the statements on rationale and marking criteria provided in the
Subject Outline.
Question 1 (5 marks)
Explain how the original Phillips curve differs from the expectations-augmented Phillips
curve (or the modified, or accelerationist Phillips curve).
Answer:
Originally, Phillips curve was invented by A.W.Phillips in 1958 by deriving a statistical
elationship between wage inflation and unemployment. Later in 1960, it was reinvented by
Lipsey who repeated this analysis and gave the strong theoretical basis for the relationship.
According to him, there is negative relationship between unemployment and inflation and
this relationship is given by “Phillips curve” i.e. Original Phillips curve postulates that
unemployment and inflation are negatively related. The original Phillips curve did not take
into account inflationary expectation and the adjustments that people will make to their
economic decisions if their inflationary expectation turn out to be wrong. Expectations-
augmented Phillips curve,...
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