Answer to Question #250771 in Macroeconomics for THATOS

Question

[P=P^E(1+m)(1-au+z)

Answer 1

A specific variant of the AS curve may be used to create the Phillips curve. Take a look at the aggregate-supply relationship.

P = P e (1 + µ)F(u, z).

This relationship may be recast to show a link between inflation, predicted inflation, and the unemployment rate. Assume the functional form explicitly to do so.

F(u, z) = 1 − αu + z for some α > 0. Insert it into the aggregate-supply relation

P = P e (1 + µ)(1 − αu + z).