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Question 3
11:38 AM Wed Jan The expectations augmented Phillips curve postulates where Δρ is the actual inflation rate, π is the expected inflation rate, and u is the unemployment rate, with ū indicating equilibrium (the NAIRU - Non-Accelerating Inflation Rate of Unermployment). Under the assumption of static expectations ( π=ΔΡο ), i.e. that you expect this periods inflation rate to hold for the next period (the sun shines today, it will shine tomorrow), then the prediction is that inflation will accelerate if the unemployment rate is below its equilibrium level. The accompanying table below displays information on accelerating annual inflation and unemployment rate differences from the equilibrium rate (cyclical unemployment), where the latter is approximated by a five-year moving average. You think of this data as a population which you want to describe, rather than a sampl collected from United States quarterly data for the period 1964:1 to 1995:4 le from which you want to infer behavior of a larger population. The data is Joint Distribution of Accelerating Inflation and Cyclical Unemployment, 1964:1-1995:4 (u -u)>0 0.156 0.297 (u-u)co (Y-1) 0.383 Total 0.164 Total 1.00 (a) (b) Compute the marginal Probability of X and Y and sketch a graph for each. Compute E(Y) and E(X), and interpret both numbers in this particular example.(5) Calculate E(Y IX = 1) and E(Y | X-0). Interpret your results in this particular example (7.5) Ronus 5 noints) If there was indenendence hetveen cvelical unemnloyment and
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