Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Your research assistant estimated the Phillips Curve TT = E[T] - 0.5ut + 0.02 + Vt and you believe inflationary expectations
are adaptive so E[T] = TTt-1. The Fed and Congress plan to work together to keep the economy running hot for the next
few years, targeting a 3% unemployment rate. Use the Phillips Curve to fill in the table below, predicting the inflation rate
for the next few years if the 3% unemployment target is reached.
UE rate
Cost-push
shock
year
1
0.02
0.04
2
0.03
3
0.03
0.03
lo
What is the predicted inflation rate for year 4?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F22f9c458-6ed0-44bd-8c05-235a25a8851a%2Fe868586e-960f-4506-b87c-31122e691479%2Fmenw6c_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Your research assistant estimated the Phillips Curve TT = E[T] - 0.5ut + 0.02 + Vt and you believe inflationary expectations
are adaptive so E[T] = TTt-1. The Fed and Congress plan to work together to keep the economy running hot for the next
few years, targeting a 3% unemployment rate. Use the Phillips Curve to fill in the table below, predicting the inflation rate
for the next few years if the 3% unemployment target is reached.
UE rate
Cost-push
shock
year
1
0.02
0.04
2
0.03
3
0.03
0.03
lo
What is the predicted inflation rate for year 4?
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