Question

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.correct expectations01234567843210-1-2-3-4actual minus expected rate of inflation (percent)unemployment rate (percent)when people accurately anticipate the inflation rate, the natural rate of unemployment is%.on the previous graph, place the black cross point to illustrate the situation when people underestimate inflation by 2%.when people underestimate inflation, the resulting unemployment rate is the natural rate.true or false: the modern view of the phillips curve indicates that to keep the unemployment rate low, policymakers should follow policies consistent with low and steady inflation.truefalse

Answer 1

The Phillips curve shows the tradeoff between unemployment and inflation. Accurate anticipation of inflation leads to stable unemployment. Underestimating inflation leads to higher unemployment. Policies consistent with low and steady inflation can keep the unemployment rate low.

Step-by-step explanation:

The Phillips curve is a graphical representation of the tradeoff between unemployment and inflation in an economy. In the short run, according to the expectations framework, if people accurately anticipate the inflation rate, the natural rate of unemployment will be the unemployment rate at which inflation is stable. This point is represented by the grey star on the graph.

If people underestimate inflation by 2%, the resulting unemployment rate will be higher than the natural rate. This point is represented by the black cross on the graph.

The modern view of the Phillips curve suggests that to keep the unemployment rate low, policymakers should follow policies consistent with low and steady inflation. Therefore, the statement is true.