Assume that an economy has the Phillips curve $\pi$ = $\pi$_-₁ - 0.5(u - 0.06).Then the natural rate of unemployment is: A) 0.5. B) 0.12. C) 0.06. D) 0.03.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the level of unemployment that exists when the economy is in a long-run equilibrium. In this case, the Phillips curve is given by: 
π = -0.5(u - 0.06) 
To find the level of u at which there is no inflationary or deflationary pressure, we need to find the level of u at which π = 0. 
0 = -0.5(u - 0.06) 
0 = -0.5u + 0.03 
0.5u = 0.03 
u = 0.06 
Therefore, the natural rate of unemployment is 0.06.

Assume That an Economy Has the Phillips Curve π\piπ = π\piπ -1 - 0

Assume That an Economy Has the Phillips Curve $\pi$ = $\pi$ _-₁ - 0