Assume that the Phillips curve in an economy is $\pi$ = 3 - .5(u - 5),where $\pi$ is the inflation rate and u is the unemployment rate.If unemployment is currently is currently 6 percent,then inflation should be
A)2.0%
B)3.5%
C)2.5%
D)3.0%

Question

Quizplus · Accepted Answer

Using the given Phillips curve equation, when u (unemployment rate) is 6%, we plug it in and solve for inflation rate (π):

F1F1F1S1πF1F1F10 = 3 - 0.5(6 - 5)
π = 2.5%

Therefore, the inflation rate that corresponds to an unemployment rate of 6% in this economy is 2.5%.

Assume That the Phillips Curve in an Economy Is π\piπ = 3 - 5(u - 5),where

Assume That the Phillips Curve in an Economy Is $\pi$ = 3 - 5(u - 5),where