An Estimate of the Short-Run Phillips Curve for a Hypothetical

question 32

Essay

An estimate of the short-run Phillips curve for a hypothetical economy is u = 12 - 1.5ð, where u is the unemployment rate and ð is the inflation rate.
a. If the natural rate of unemployment is 8 percent, what is the expected inflation rate that is consistent with this short-run Phillips curve?
b. Suppose the government passes legislation that decreases the natural rate of unemployment by two percentage points. What is the new long-term inflation rate?

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Definitions:

Stability of Society

The condition in which a society maintains its structure and functions without significant disruption or change over time.

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The capacity to shift from one perspective to another to understand the relationship between individual experiences and larger social influences.

Beginner's Mind

An approach or mindset that is open and without preconceptions, much like that of a beginner, regardless of the individual's level of expertise.

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