The Phillips Curve in Lowland Takes the Form π =

question 32

Essay

The Phillips curve in Lowland takes the form π = 0.04 - 0.5 (u - 0.05), where π is the actual inflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form π = 0.08 - 0.5 (u - 0.05). The current unemployment rate in both countries is 9 percent (0.09).
a. Explain the similarities in the Phillips curves in Highland and in Lowland. b. Explain the difference in the Phillips curves in Highland and in Lowland.
c. In which country will policymakers face a bigger tradeoff if they try to reduce unemployment in the short run?

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Definitions:

Political Pressure

Efforts exerted by individuals, groups, or organizations aiming to influence the decisions or actions of government officials, policy-makers, or any entity in a position of power.

Shareholder Model

A corporate governance framework where the primary focus is on maximizing the value for shareholders.

Short-Run Profits

Earnings achieved in a short period of time, often prioritized at the expense of long-term sustainability or investment.

Shareholder Wealth

The total value of an investment in a company held by its shareholders, often measured by stock price optimization and dividend payouts.