The Phillips Curve Describing an Economy Takes the Form U

question 59

Multiple Choice

The Phillips curve describing an economy takes the form u = uⁿ - α(π - Eπ) . The central bank directly sets the inflation rate to minimize the following loss function, L (u, π) = u + γπ². The symbol u denotes the unemployment rates, uⁿ is the natural rate of unemployment, π is the inflation rate, Eπ is the expected inflation rate, and α and γ are behavioural response parameters of the economy. Private agents form their expectations rationally before the central bank sets the inflation rate. The optimal inflation rate when the central bank operates using a fixed rule will be _____. The optimal inflation rate when the central bank operates with discretion will be _____.

• A)uⁿ; 0
• B)0; uⁿ
• C)0; α/(2γ)
• D)α/(2γ); 0

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Definitions:

Gray Matter

A major component of the central nervous system consisting of neuron cell bodies, dendrites, and unmyelinated axons, associated with processing and cognition.

Myelinated Axons

Nerve fibers covered with myelin, a protective sheath that enhances the speed and efficiency of electrical signal transmission in the nervous system.

Local Potential

Small changes in membrane potential that are crucial in the propagation of nerve impulses and can lead to an action potential if they reach a certain threshold.

Depolarization Event

A temporary change in a cell's membrane potential, making it more positive, typically associated with the initiation of nerve impulses or muscle contractions.