If the equation for a country's Phillips curve is π = 0.02 - 0.8(u - 0.05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 4 percent (0.04)?

Question

Quizplus · Accepted Answer

When unemployment is 4 percent (0.04), substitute u = 0.04 into the equation: π = 0.02 - 0.8(0.04 - 0.05) = 0.02 + 0.008 = 0.028, which is above 2 percent.

If the Equation for a Country's Phillips Curve Is π