If the Phillips curve in an economy is given by π =π-1-0.5(u-0.02), thenit takes 6 percentage points of cyclicalunemployment to reduce inflation by 3percentage pointsrequires 3 percentage points of cyclicalunemployment to reduce the rate ofinflation by 6 percentage pointsthe natural rate of unemployment is 3%the natural rate of unemployment is 5%the natural rate of unemployment is 6%

The relationship between inflation and unemployment is explained by Philip's curve. According to it,…

Answered: If the Phillips curve in an economy is…

If the Phillips curve in an economy is given by π = π-1-0.5(u-0.02), then it takes 6 percentage points of cyclical unemployment to reduce inflation by 3 porcentage points

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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When you graph the Phillips curve, what goes on the y-axis? Change in inflation Rate of inflation Change in consumer price Change in short-run output
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Phelps was suspicious of the tradeoff suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Consider the following scenario. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that in January, 10% of the workers…
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