Answer to Question #277153 in Macroeconomics for Akuabata

Question

Assume the Phillips curve is given by the simple equation U = - 1 + 16 The non-accelerating rate of unemployment is 8 percent. a. If inflation changes to 13 percent, what will be the unemployment rate in the short run? bWhat will it be in the long run?

Answer 1

If inflation changes to 13$\%$

a. Unemployment rate;$U=-15+(-1+8+13)$

$=5\%$

b. In the long run, employment rate will be equal to the natural rate of unemployment (non accelerating rate of unemployment) i.e $10\%$