Which equation summarize the analysis of Friedman and Phelps (where a is a positive number)?
A) unemployment rate = natural rate of unemployment - a(actual inflation - expected inflation)
B) unemployment rate = natural rate of unemployment - a(expected inflation - actual inflation)
C) unemployment rate = expected rate of inflation - a(actual inflation - expected inflation)
D) unemployment rate = actual rate of inflation - a(actual unemployment - expected unemployment)

Question

Quizplus · Accepted Answer

Friedman and Phelps' equation is commonly known as the "Phillips curve." It shows the relationship between inflation and unemployment. The equation states that the actual unemployment rate is equal to the natural rate of unemployment minus a coefficient multiplied by the difference between actual inflation and expected inflation. This means that higher inflation leads to lower unemployment in the short run, but in the long run, the economy returns to its natural rate of unemployment regardless of the inflation rate.

Which Equation Summarize the Analysis of Friedman and Phelps (Where