In the Phillips curve, $\Delta \pi _ { t } = \overline { \boldsymbol { v } } \tilde { Y } _ { t } + \bar { a }$ , if $\overline { \boldsymbol { v } }$ Is large, then:
A) price-setting behavior is completely insensitive to short-run fluctuations
B) price-setting behavior is very insensitive to short-run fluctuations
C) inflation is not very sensitive to short-run fluctuations
D) price-setting behavior is very sensitive to short-run fluctuations
E) Not enough information is given.

Question

Quizplus · Accepted Answer

A large $\overline { \boldsymbol { v } }$ indicates that price-setting behavior is very sensitive to short-run fluctuations in output.

In the Phillips Curve Δπt=v‾Y~t+aˉ\Delta \pi _ { t } = \overline { \boldsymbol { v } } \tilde { Y } _ { t } + \bar { a }Δπt​=vY~t​+aˉ

In the Phillips Curve $\Delta \pi _ { t } = \overline { \boldsymbol { v } } \tilde { Y } _ { t } + \bar { a }$