Starting on a Phillips Curve with Expected Inflation Equal to 5

question 98

Essay

Starting on a Phillips curve with expected inflation equal to 5% and unemployment at its natural rate,show what happens to unemployment if the Fed tries to reduce inflation,but has no credibility.As time passes and people realize that the inflation rate is now lower,what happens to the short-run Phillips curve?

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Definitions:

Motive

Need or desire that energizes and directs behavior toward a goal.

Emote

To express emotion or feelings in a very noticeable way.

Cannon-Bard Theory

A theory of emotion that proposes that emotions and bodily changes occur simultaneously, in contrast to theories that suggest emotions are a result of bodily reactions.

James-Lange Theory

A theory suggesting that emotions occur as a result of physiological reactions to events.