Essay
Given that the Philips curve defines an economy as u = 6 - 0.4(π - Eπ) where u is the unemployment rate and π is the inflation rate, and the loss function which tells the social cost of unemployment and inflation is L = u + 0.05π2, calculate the optimal level of inflation for the economy taking expected inflation as given.
Correct Answer:
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Correct Answer:
Verified
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