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:

Economy's Potential

Refers to the maximum sustainable level of output an economy can produce, taking into account its resources and technology.

Time Preference

An individual's predisposition to prioritize present benefits over future benefits.

Real Interest Rates

The interest rates adjusted for inflation, more accurately representing the cost of borrowing and the yield on savings than the nominal interest rate.

Productive Projects

Initiatives or activities undertaken by firms or individuals that result in increased outputs or efficiency.