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Questions › IIT JAM › IIT JAM 2024 › Q30
2 marks, −0.667Macroeconomics › Inflation, unemployment and the Phillips curve › The expectations-augmented Phillips curveModerateabout 2 min

IIT JAM 2024 Question 30: Inflation, unemployment and the Phillips curve

Suppose expected inflation πte=(1−θ)πˉ+θπt−1\pi_t^e = (1-\theta)\bar\pi + \theta\pi_{t-1}πte​=(1−θ)πˉ+θπt−1​, where πˉ\bar\piπˉ is constant inflation, πt−1\pi_{t-1}πt−1​ is last year's inflation, and 0≤θ≤10 \le \theta \le 10≤θ≤1. Then, which of the following is NOT CORRECT?

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Plain-text version

Suppose expected inflation πₜ^e = (1-θ)π̄ + θπₜ₋₁, where π̄ is constant inflation, πₜ₋₁ is last year's inflation, and 0 ≤ θ ≤ 1. Then, which of the following is NOT CORRECT? (A) If θ = 0, the individual assumes a constant inflation rate (B) If θ ≈ 1 and π̄ < πₜ₋₁, the individual expects this year's inflation similar to last year (C) The original Phillips curve is derived under the assumption of θ ≈ 1 (D) A modified Phillips curve is derived under the assumption of θ = 1

Also written as: Suppose expected inflation pi_t^e = (1-theta)pi_bar + thetapi_(t-1), where pi_bar is constant inflation, pi_(t-1) is last year's inflation, and 0 <= theta <= 1. Then, which of the following is NOT CORRECT?

Inflation, unemployment and the Phillips curve has come up 106 times in 7 exams since 2006.

What this question tests

This question is on The expectations-augmented Phillips curve, part of Inflation, unemployment and the Phillips curve in Macroeconomics.

How expected inflation shifts the trade-off and makes it vertical in the long run.

TestStop has 16 past-paper questions on this subtopic; the nearest in year are below.

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Question from the IIT JAM 2024 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.