Given Phillips curve 03 U 6 suppose that inflation in t

Given Phillips curve = - 0.3 (U - 6) + , suppose that inflation in the preceding period was 3 percent, unemployment is 7 percent, and there is no price shock. The current inflation rate is? Please show work in MS format, not handwriting. Thanks

Solution

Since there is no price shock,

= - 0.3 (U - 6)

Current inflation - Previous period inflation = - 0.3 (U - 6)

Current inflation - 3 = 0.3 (7 - 6)

Current inflation - 3 = 0.3 x 1 = 0.3

Current inflation = 0.3 + 3 = 3.3 (%)