What happens to the natural rate of unemployment/inflation rate when the real price of oil increase

Macroeconomics for Business Managers (Econ 52-651)

Assignment 5 (Chapter 9) (20 points)

Name _________________________________________________

INSTRUCTION: Read each question carefully and answer in the space provided. Please highlight your answers (or use a different color of font) and show all work where necessary. You will lose points if you do not show work where necessary. Your assignment must be submitted as a Word document by 11:59 pm Friday, November 30 (so that I will provide you the answer key on Saturday, December 1). No late assignments are accepted.

CHAPTER 9

1. Use the IS-LM-PC model to illustrate how the economy adjusts to an increase in taxes both in the short run and in the medium run.

2. What happens to the natural rate of unemployment and the inflation rate when the real price of oil increases? (Hint: Use WS-PS and also IS-LM-PC models).

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