Suppose that the Phillips curve is given by where Suppose that inflation in year

Question

Suppose that the Phillips curve is given by where Suppose that inflation in year (t-1) is zero. In year t, the central bank decides to keep the unemployment rate at 49 forever Now suppose that half the workers have indexed labor contracts. Now, in year t, the inflation rate will be 9 . (Enter your response as an integer) in year (t + 1), the inflation rate will be %. (Enter your response as an integer.) in year (t + 2), the inflation rate will be %. (Enter your response as an integer.) In year ( + 3), the inflation rate will be%.(Enter your response as an integer.)

Explanation / Answer

Inflation rate will be:

In year t, 4%

In year (t+1), 8%

In year (t+2), 12%

In year (t+3), 16%

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