ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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5. Expectations and the modern view of the Phillips curve
The following graph shows the short-run Phillips curve within the expectations framework.
On the graph, place the grey star point to illustrate the situation when people accurately anticipate
the inflation rate.
UAL MINUS EXPECTED RATE OF INFLATION (Percent)
1 2 3 4 5 6 7
UNEMPLOYMENT RATE (Percent)
8
%
9 10 11 12
Correct expectations
+
When people accurately anticipate the inflation rate, the natural rate of unemployment is
True
o False
(?)
On the previous graph, place the black cross point to illustrate the situation when people
underestimate inflation by 4%.
When people underestimate inflation, the resulting unemployment rate is
rate.
the natural
True or False: The modern view of the Phillips curve indicates that to keep the unemployment rate
low, policymakers should rapidly increase inflation rates.
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Transcribed Image Text:5. Expectations and the modern view of the Phillips curve The following graph shows the short-run Phillips curve within the expectations framework. On the graph, place the grey star point to illustrate the situation when people accurately anticipate the inflation rate. UAL MINUS EXPECTED RATE OF INFLATION (Percent) 1 2 3 4 5 6 7 UNEMPLOYMENT RATE (Percent) 8 % 9 10 11 12 Correct expectations + When people accurately anticipate the inflation rate, the natural rate of unemployment is True o False (?) On the previous graph, place the black cross point to illustrate the situation when people underestimate inflation by 4%. When people underestimate inflation, the resulting unemployment rate is rate. the natural True or False: The modern view of the Phillips curve indicates that to keep the unemployment rate low, policymakers should rapidly increase inflation rates.
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