Question

If in an economy, there are no supply shocks and expected inflation is 5% over the next year. Determine the inflation rate that is depicted by the short run Phillips curve at the natural rate of unemployment?
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Answer 1

Explanation:

The Phillips curve shows the inverse trade-off between rates of inflation and rates of unemployment. If unemployment is high, inflation will be low; if unemployment is low, inflation will be high. The Phillips curve and aggregate demand share similar components.