In the expectations-augmented Phillips curve π = π^e - 3(u - .06), when π = .06 and π^e = .03, the unemployment rate is A) .03. B).05. C).)07. D).09.

Question

Quizplus · Accepted Answer

Substituting the given values in the equation, we get:

0.06 = (0.03) - 3(u - 0.06)

Simplifying, we get:

0.06 = 0.03 - 3u + 0.18

-0.15 = -3u

u = 0.05

Therefore, the unemployment rate is 0.05, which is option B.

In the Expectations-Augmented Phillips Curve π = πe - 3(u