Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation?

A)1%
B)0%
C)3%
D)-1%

Question

Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation?

A)1% 
B)0% 
C)3% 
D)-1%

Quizplus · Accepted Answer

If GDP is at potential GDP, there should be no unexpected inflation according to the Phillips curve. Therefore, we expect inflation to be 0%.

Suppose That in a Given Country, the Line of Best