Question

Economists prefer a certain "healthy" target range on the short-run Phillips curve. What best describes the target range?

Answer 1

Answer:

The target range is a range beyond which is it inflation is estimated not to go.

Explanation

When policymakers, economists, analysts, and investors forecast based on the target range, it's called Anchored Expectations.

In the US, this target is usually between 2 and 3%. When the Fed makes this sort of announcement, expecting that prices will up by approximately 2%, then businesses will tend to follow suit. Same with Unions. If inflation on the short-run Philips curve exceeds that anchor, businesses are more likely to weather it and not react given their confidence in the forecast of the government.

When this happens the rate tends to remain stable. When the rate remains stable, the government has more chances of meeting its target.

The short-run Phillips curve by the way is the graph that depicts the inverse relationship in the short-term between inflation and unemployment.

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