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:

Goal Set

The process or result of establishing objectives to be achieved within a certain timeframe, often involving specific, measurable actions.

Sensory Appeal

The attractiveness of something that affects one or more of the five senses, making it appealing or desirable.

Food Behavior

The habits and practices associated with food consumption.

Taste Preferences

Individual differences in the liking or disliking of specific flavors and foods, often influenced by genetic, cultural, and environmental factors.