For this question,assume that the Phillips curve equation is represented by the following: πt - πt-1 = (m + z)- αut.Which of the following will cause a reduction in the natural rate of unemployment?

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Quizplus · Accepted Answer

An increase in α, the coefficient on unemployment in the Phillips curve equation, will result in a lower natural rate of unemployment. This is because a higher α means that a larger portion of changes in inflation (πt - πt-1) are attributed to changes in unemployment (ut), indicating a stronger relationship between unemployment and inflation. This implies that lower unemployment is needed to maintain a certain level of inflation (m + z). Increases in m, z, actual inflation, or expected inflation do not directly affect the natural rate of unemployment.

For This Question,assume That the Phillips Curve Equation Is Represented