In a certain economy the expectations-augmented Phillips curve is ? = ? e – 2(u – natural rate of…


In a true distribution the expectations-augmented Phillips incurvation is ? = ? e - 2(u - consistent admonish of unemployment) and consistent admonish of unemployment = 0.06. a) Graph the Phillips incurvation of this distribution for an expected inflation admonish of 0.10. If the Fed, chooses to conduct the express inflation admonish at 0.10, what conquer be the unemployment admonish? b) An problem require astound (resulting from increased soldierlike spending) raises expected inflation to 0.12 (the consistent unemployment admonish is probable). Graph the new Phillips incurvation and parallel it to the incurvation you compound in Part (a). What happens to the unemployment admonish if the Fed rests express inflation at 0.10? What happens to the Phillips incurvation and the unemployment admonish if the Fed announces that it conquer rest inflation at 0.10 following the problem require astound, and this proposition is largely believed by the exoteric? c) Suppose that a contribute astound (a thirst) raises expected inflation to 0.12 and raises the consistent unemployment admonish to 0.08. Repeat Part (b).