The Phillips Curve Describing an Economy Takes the Form U $\alpha$

question 83

Multiple Choice

The Phillips curve describing an economy takes the form u = uⁿ - $\alpha$ ( $\pi$ - E $\pi$ ) . The central bank directly sets the inflation rate to minimize the following loss function, L(u, $\pi$ ) = u + $\gamma$ $\pi$ ². The symbol u denotes the unemployment rates, uⁿ is the natural rate of unemployment, $\pi$ is the inflation rate, E $\pi$ is the expected inflation rate, and $\alpha$ and $\gamma$ are behavioral response parameters of the economy. Private agents form their expectations rationally before the central bank sets the inflation rate. In an economy in which the central bank dislikes inflation much more than unemployment:

• A) \(\alpha\) will be very large.
• B) \(\alpha\) will be very small.
• C) \(\gamma\) will be very large.
• D) \(\gamma\) will be very small.

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Definitions:

Organic Compound

A chemical compound containing carbon atoms bonded to hydrogen atoms in a structure.

Cyclopentanecarboxylic Acid

An organic compound characterized by a five-membered ring structure bonded to a carboxylic acid group, often involved in the synthesis of pharmaceuticals and fine chemicals.

Thionyl Chloride

A reactive chemical compound used for converting alcohols into chlorides and as a reagent in various organic synthesis reactions.

Organic Product

A chemical compound or substance that is based on carbon skeletons and is produced by living organisms.