The Relationship Between Inflation and Unemployment Is Given by
π $\bar u$

question 47

Essay

The relationship between inflation and unemployment is given by
π = π^e - 4(u - $\bar u$ ).(a)Draw a diagram showing a long-run Phillips curve and two short-run Phillips curves that contain the following points:
A: π = .04,π^e = .04
B: π = .08,π^e = .08
C: π = .04,π^e = .08
D: π = .08,π^e = .04
Label points A,B,C,and D in your diagram.
The unemployment rate at point A equals .05.
(b)What are the values of the natural rate of unemployment and the unemployment rates at points B,C,and D?

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Definitions:

Supply Curve

A graphical representation of the supply schedule, showing the relationship between quantity supplied and price.

Demand Curve

A graphical representation of the demand schedule, showing the relationship between quantity demanded and price.

Equilibrium Quantity

The quantity of a good or service bought and sold at the equilibrium (or market-clearing) price.

Excise Tax

A tax imposed on specific goods, services, or activities, usually with the aim of reducing consumption or generating revenue.