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(Solved): Consider the following augmented Phillips curve: \[ \pi_{t}-\theta \pi_{t-1}=(m+z)-\alpha u_{t} \] ...
![Consider the following augmented Phillips curve:
\[
\pi_{t}-\theta \pi_{t-1}=(m+z)-\alpha u_{t}
\]
When \( \theta \) is equal](https://media.cheggcdn.com/media/dd2/dd2c34e1-ab73-498a-bf35-270c330deda4/phpDgnGNS)
Consider the following augmented Phillips curve: \[ \pi_{t}-\theta \pi_{t-1}=(m+z)-\alpha u_{t} \] When \( \theta \) is equal to zero then: Inflation fully depends on inflation in the previous period. The augmented Phillips curve transforms into the original Phillips curve. Inflation is very persistent. Inflation expectations are one.
Expert Answer
Option b is correct Suppose we consider the augmented philips curve as Pit -