Suppose the Phillips curve is represented by the following equation: πt - πt₋₁ = 20 - 2ut.Given this information,which of the following is most likely to occur if the actual unemployment in any period is equal to 6%?

Question

Quizplus · Accepted Answer

The Phillips curve equation shows that when unemployment is low (ut is low), inflation (πt - πt₋₁) tends to increase. When unemployment is high (ut is high), inflation tends to decrease. In this case, the actual unemployment is 6%, which is relatively low. Therefore, the rate of inflation is likely to tend to increase.

Suppose the Phillips Curve Is Represented by the Following Equation