Suppose that expected inflation is the average of inflation over the two previous years: n = (1/2)[n(-1)
Question:
n = (1/2)[n(-1) + n(-2)]
a. Write the equation for the Phillips curve in this case.b. Redo the disinflation example in Figure 12.21. Assume the path of the real interest rate is the same as before. Is the path of output different with the new Phillips curve? The path of inflation? Explain.
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a The general equation for the Phillips curve is n n5 aY YY v With inflationary expectations based o...View the full answer
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