Macroeconomics 5th Edition by Olivier Blanchard

تمرين 5

The macroeconomic effects of the indexation of wages
Suppose that the Phillips curve is given by
Suppose that inflation in year t - 1 is zero. In year t, the authorities decide to keep the unemployment rate at 4% forever.
a. Compute the rate of inflation for years t, t + 1, t + 2, and t + 3. Now suppose that half the workers have indexed labor contracts.
b. What is the new equation for the Phillips curve
c. Based on your answer to part (b), recompute your answer to part (a).
d. What is the effect of wage indexation on the relation between
and u