In the expectations-augmented Phillips curve,π = π^e - 3(u - $ \bar u $ ).If π = 0.06 when π^e = 0.06 and u = 0.04,then $ \bar u $ = A)0)02. B)0)03. C)0)04. D)0)05.

Question

Quizplus · Accepted Answer

If we plug in the given values into the Phillips curve equation, we get:

0.06 = 0.06 - 3(u - $ \bar u $)

Simplifying:

0.06 = 0.06 - 3u + 3$ \bar u $

3u - 3$\bar u$ = 0

3($ \bar u $ - u) = 0

$ \bar u $ - u = 0

$ \bar u $ = u = 0.04

Therefore, the best choice is C)0.04.

In the Expectations-Augmented Phillips Curve,π = πe - 3(u - uˉ \bar u uˉ

In the Expectations-Augmented Phillips Curve,π = π^e - 3(u - $\bar u$