Question from Past Macroeconomics Qualifying Exam (Fall, 2003 - Question two) at George Mason University
Various contributions to macroeconomic analysis have made use of two different types of "natural rate" formulations. One is the natural rate of unemployment, articulated by Milton Friedman and Edmund Phelps in the 1960s. The other is the natural rate of interest, articulated by Knut Wicksell in the 1890s.
- a. Outline a simple model that illustrates the type of intertemporal substitution that lies at the core of the natural rate of unemployment.
- b. Outline a simple model that illustrates the type of intertemporal substitution that lies at the core of the natural rate of interest.
- c. Compare, contrast and evaluate the analytical implications of these alternative natural rate formulations
Answer
- (a)
- (b)
- (c)
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