If the equation for a country's Phillips curve is $\pi$ = .02 - .8(u - .05),where $\pi$ is the rate of inflation and u is the unemployment rate,what is the short-run inflation rate when unemployment is 4 percent (.04)?
A) above 2 percent (.02)
B) below 2 percent (.02)
C) 2 percent (.02)
D) -2 percent (-.02)

Question

Quizplus · Accepted Answer

Plugging in the given unemployment rate of 0.04 into the Phillips curve equation, we get:
S1F1F1F10 = .02 - .8(0.04 - .05)
Simplifying this, we get:
S1F1F1F10 = .02 + .008 = .028
So the short-run inflation rate when unemployment is 4 percent is 2.8 percent, which is above 2 percent, therefore the answer is A) above 2 percent.

If the Equation for a Country's Phillips Curve Is π\piπ = 02 -8(u -

If the Equation for a Country's Phillips Curve Is $\pi$ = 02 -8(u -