The Phillips Curve in Lowland Takes the Form $\pi$ = 04 -5 (U -

question 16

Essay

The Phillips Curve in Lowland takes the form $\pi$ = .04 - .5 (u - .05),where $\pi$ is the actual inflation rate and u is the unemployment rate.The Phillips curve in Highland takes the form $\pi$ = .08 - .5 (u - .05).The current unemployment rate in both countries is 9 percent (.09).a.Explain the similarities in the Phillips curves in Highland and in Lowland.b.Explain the difference in the Phillips curves in Highland and in Lowland.c.In which country will policymakers face a bigger tradeoff if they try to reduce unemployment in the short run?

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Definitions:

Economic Growth

An increase in the production of goods and services in an economy over a period, typically reflected as a percentage increase in real GDP.

Doubling Inputs

When the quantities of all inputs used in the production process are increased by the same proportion.

Foreign Direct Investment

is an investment made by a firm or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets.

Foreign Portfolio Investment

Investment in financial assets from another country, such as stocks or bonds, without direct control over the businesses.