Use the following Phillips curve equation to answer this question: πt - πt₋₁ = (m + z)- αut.Which of the following will cause an increase in the natural rate of unemployment?

Question

Quizplus · Accepted Answer

An increase in z (the shift factor of the Phillips curve) implies an increase in the natural rate of unemployment, indicating that the economy requires a higher rate of unemployment to maintain stable inflation. A reduction in m (the growth rate of money supply) will reduce inflation, but it will not impact the natural rate of unemployment. An increase in α (the slope of the Phillips curve) will result in a steeper tradeoff between inflation and unemployment, but it will not impact the natural rate of unemployment. A reduction in expected inflation (πt-1) will lead to lower inflation, but it will not impact the natural rate of unemployment. Therefore, the correct answer is B.

Use the Following Phillips Curve Equation to Answer This Question