Unemployment and inflation are inversely related, with one rising as the other f

Question

Unemployment and inflation are inversely related, with one rising as the other falls, and an equation giving the relation is called a Phillips curve after the economist A. W. Phillips

(19141975).

Phillips used data from 1861 to 1957 to establish that in the United Kingdom the unemployment rate x and the wage inflation rate y were related by

y = 9.638x1.394 0.900

where x and y are both percents.† Use this relation to estimate the inflation rate when the unemployment rate was 3 percent and 4 percent. (Round your answers to two decimal places.)

Explanation / Answer

n question it is given that unemployment and wage inflation are inversely proportional to each other.But according to given equation both are directly proportional and when unemployment increasing from 3 to 4 percent wage inflation is also increasing from 28.42 when x=3 to 38.06 when x=4 as per given equation. If both are inversely proportional then the given equation is wrong. If the given equation is correct then the answer is y=28.42 when x=3 and y=38.06 when x=4 percent.

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