Using the Phillips curve to forecast future inflation involves which two steps?
A)Assess inflation expectations, and then forecast unexpected inflation.
B)Fix inflation expectations, and then calculate the difference from actual inflation.
C)Use adaptive expectations, and then use anchored expectations.
D)Calculate a trend based on past inflation, and then add 2%.

Question

Quizplus · Accepted Answer

The Phillips curve relates inflation to the unemployment rate. To forecast future inflation using the Phillips curve, the first step is to assess inflation expectations. This allows for the calculation of unexpected inflation based on the difference between actual inflation and expected inflation. Without considering inflation expectations, the Phillips curve would not be an effective tool for forecasting inflation.

Using the Phillips Curve to Forecast Future Inflation Involves Which