Given That the Philip Curve Defines an Economy As $u = 6 - 0.4 ( \pi - E \pi )$

question 78

Essay

Given that the Philip curve defines an economy as $u = 6 - 0.4 ( \pi - E \pi )$ where u is the unemployment rate and $\pi$ is the inflation rate, and the loss function which tells the social cost of unemployment and inflation is $L = u + 0.05 \pi ^ { 2 }$ ,calculate the optimal level of inflation for the economy.

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Definitions:

Employees

Employees are individuals who are hired by an employer to perform specific duties in exchange for compensation, typically in the form of wages or salary.

Great Depression

A severe, worldwide economic downturn that took place during the 1930s, marked by high unemployment, deflation, and a significant drop in consumer spending and investment.

Unions

Organizations formed by workers to advocate for their rights, benefits, and interests within the workplace.

Organize

To arrange or structure people, items, or activities in a systematic way for efficiency or clarity.