The Relationship Between Inflation and Unemployment Is Given by

Essay

The relationship between inflation and unemployment is given by
? = ?e - 2(u - ).
(a)Draw a diagram showing a long-run Phillips curve and two short-run Phillips curves that contain the following points:
A: ? = .03,?e = .03
B: ? = .06,?e = .06
C: ? = .03,?e = .06
D: ? = .06,?e = .03
Label points A,B,C,and D in your diagram.
The unemployment rate at point A equals .05.
(b)What are the values of the natural rate of unemployment and the unemployment rates at points B,C,and D?