Given the accelerationist Phillips curve Δπ = - 0.7 (U - 5)+ ρ,suppose that inflation has increased from 8 percent to 10 percent.If the unemployment rate is 4 percent,then the price shock is ________.
A)2.7 percent
B)0.6 percent
C)1.3 percent
D)1 percent
E)none of the above

Question

Quizplus · Accepted Answer

Given the accelerationist Phillips curve formula Δπ = -0.7(U - 5) + ρ, where Δπ is the change in inflation, U is the unemployment rate, and ρ is the price shock. The change in inflation (Δπ) is from 8% to 10%, which is a 2% increase. The unemployment rate (U) is 4%. Substituting these values into the equation gives 2 = -0.7(4 - 5) + ρ, which simplifies to 2 = 0.7 + ρ. Solving for ρ gives ρ = 1.3%.

Given the Accelerationist Phillips Curve Δπ = - 0