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Phillips Curve In figure 5-4(c) the celebrated Phillips curve is depicted. Review the data set for this week's Problem set, which extends the data into future years: you will notice that there is no longer a simple relation between inflation and unemployment. You can see visually what is happening in this animation from Carnegie Mellon University Links to an external site.. It turns out that the simple Phillips Curve has omitted an important variable. One good discussion of what is happening is Topic 5. The Phillips Curve Links to an external site.. Based upon your research, Questions: A. Discuss how an economist might discover that a variable may be missing and how an economist might determine what variable that may be? B. What variable to believe this to be and why? Material to help study of the topic Link to the gift with the Phillip Cure (Carnegie Mellon University): https://www.andrew.cmu.edu/course/88-301/phillips/phillips_curve.gif Link to help understand Phillip Curve (Topic 5. The Phillips Curve): https://www.economics.utoronto.ca/jfloyd/modules/phlc.html B, CO B, >0 (c) One important application of Figure 5-4(c) is the celebrated Phillips curve of macroeconomics. Based on the British data on the percent rate of change of money wages (Y) and the unemployment rate (X) in percent, Phillips obtained a curve similar to Figure 5-4(c)."As this figure shows, there is asymmetry in the response of wage changes to the level of unemployment. Wages rise faster for a unit change in unemployment if the unemployment rate is below UN, which is called the natural rate of unemployment by economists, than they fall for an equiv- alent change when the unemployment rate is above the natural level, Bj indicat- ing the asymptotic floor for wage change. (See Figure 5-5 later.) This particular feature of the Phillips curve may be due to institutional factors, such as union bargaining power, minimum wages, or unemployment insurance