If the Phillips curve equation is ut - ut- 1 = - (ut - un), which of the following will increase the inflation rate by 8 percentage points?

Question

Quizplus · Accepted Answer

The Phillips curve equation given, $ut - ut-1 = -(ut - un)$, suggests that the change in unemployment rate ($ut - ut-1$) is inversely related to the deviation of the current unemployment rate from the natural rate of unemployment ($ut - un$). Each option effectively reduces unemployment by a total of 8 percentage points over different periods, which according to the Phillips curve, would increase inflation by the same total amount, assuming a linear relationship. Thus, all options would cumulatively increase the inflation rate by 8 percentage points.

If the Phillips Curve Equation Is Ut - Ut- 1