For this question,assume that the Phillips curve equation is represented by the following: πt - πt₋₁ = (m + z)- αut.Which of the following will cause a reduction in the natural rate of unemployment?

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Quizplus · Accepted Answer

An increase in α, which represents the coefficient on the unemployment variable, implies that unemployment has a stronger impact on inflation. This means that a higher level of unemployment is needed to achieve a certain level of inflation. Therefore, the natural rate of unemployment decreases, as it takes a lower rate of unemployment to achieve a given level of inflation. Increases in m, z, actual inflation, or expected inflation would not necessarily affect the natural rate of unemployment.

For This Question,assume That the Phillips Curve Equation Is Represented