Multiple Choice Questions on Given the equation for the Phillips Curve inflation rate b U U Pe if b 0 5 U 5 0 U 6 0 and Pe 3 then........... for SEBI Grade A ( Officer) Exam Preparation

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Multiple Choice Questions

Given the equation for the Phillips Curve inflation rate b U U Pe if b 0 5 U 5 0 U 6 0 and Pe 3 then...........

Economics- Phase (I & II) Inflation and Phillips Curve 
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    Given the equation for the Phillips Curve:

    inflation rate = b(U* - U) + Pe,

    if b = 0.5, U* = 5.0, U = 6.0, and Pe = 3, then the current rate of inflation is, we know that the rate of inflation in the long run would be

    2.5%

    Incorrect Answer

    3.0%

    Correct Answer

    3.5%

    Incorrect Answer

    4.0%

    Incorrect Answer

    None of the above

    Incorrect Answer
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    Explanation:

    From the equation above in question five, we know that the rate of inflation in the long run would be 3.0%. We know this because in the long run U = U*, so inflation rate = 0.5 (5% - 5%) + 3% = 3%.

    By: Jyoti Das
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