Suppose That the Expectations-Augmented Phillips Curve Were Operable with the Expected

question 33

Multiple Choice

Suppose that the expectations-augmented Phillips curve were operable with the expected rate of inflation equaling last year's rate; and let each 3-point reduction in GDP below its potential lower inflation by 1 point. Reducing inflation from 10 to 8 percent in one year would then require

• A) unemployment to run at around 6 percent for the entire year.
• B) unemployment to run at around 7 percent for the entire year.
• C) unemployment to run at around 8 percent for the entire year.
• D) unemployment to run at around 9 percent for the entire year.
• E) unemployment to run in excess of 10 percent for an entire year.

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Definitions:

Forecasting Model

A mathematical or theoretical representation used to predict future values or trends based on historical data.

Naïve Forecast

A forecasting method that assumes future values will be the same as the most recent actual value observed.

September Sales

The volume of goods or services sold by a business during the month of September.

Seasonal Indices

numerical values used to adjust data for seasonal effects, enabling comparison across different time periods by accounting for regular patterns of change.