Given the Augmented Phillips Model: Y = β₀ + β₁x₁

question 4

Multiple Choice

Given the augmented Phillips model: y = β₀ + β₁x₁ + β₂x₂ + ε, where y = actual rate of inflation (%) , x₁ = unemployment rate (%) , and x₂ = anticipated inflation rate (%) . The explanatory variable or variables in this model is (are) the ________.

• A) unemployment rate
• B) actual inflation rate
• C) anticipated inflation rate
• D) unemployment rate and anticipated inflation rate

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Definitions:

Real Value

Real value refers to the worth of a good or service taking into account inflation, providing a more accurate measure over time.

Nominal Income

The amount of money earned in current dollars, without adjustment for inflation or purchasing power.

Aggregate Demand Curve

A curve that shows the total spending on goods and services at each price level within an economy.

Autonomous Investment

Investments in an economy that are not influenced by current income levels but are determined by factors like technological changes or policy decisions.