BUSINESS: Phillips Curves 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 (1914–1975).
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 = 9.638x-1.394 - 0.900
where x and y are both percents. Use this relation to estimate the inflation rate when the unemployment rate was
a. 2 percent b. 5 percent
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