Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid:
Unemployment rate = Natural rate of unemployment − a × (Αctual inflation − x).

In this equation,
A)a is a parameter that measures how much actual inflation responds to expected inflation.
B)a = 0 at the point of intersection of the short-run and long-run Phillips curves.
C)x is the expected rate of inflation.
D)x = 0 when the actual rate of inflation equals the expected rate of inflation.

Question

Assume the analysis of Friedman and Phelps is correct, so that the following equation is valid: ​
Unemployment rate = Natural rate of unemployment − a × (Αctual inflation − x).
​
In this equation,
A)a is a parameter that measures how much actual inflation responds to expected inflation.
B)a = 0 at the point of intersection of the short-run and long-run Phillips curves.
C)x is the expected rate of inflation.
D)x = 0 when the actual rate of inflation equals the expected rate of inflation.

Quizplus · Accepted Answer

The variable x represents the expected rate of inflation in the equation.

Assume the Analysis of Friedman and Phelps Is Correct, So