Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 36, Problem 5PA
To determine

Reasoning out the arguments of inflation using the Phillips curve.

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Consider the nature of unemployment and inflation and predict whether or not they should have some sort of relation with each other. Explain why you expect that relation to hold true.
Suppose the Federal Reserve sets the real interest rate to 1.5%. Moreover, assume that there are no demand shocks, that b = 2.5, and that F = 0.02. If the resulting change in the inflation rate is +0.375 percentage points, what is the value of the parameter D? (Round to the nearest hundredth.) Hint: Use the IS and Phillips Curves to calculate your answer.
What is the "Phillips Curve"?   Why do inflation and unemployment tend to be inversely related?
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