9. Based on rational expectations theory, what happens to the inflation rate and the unemployment rate in the following situations?

a. Initially, the economy is operating at the natural unemployment rate of 4 percent, and the inflation rate is also 4 percent. People correctly anticipate that an increase in the money supply will increase the inflation rate to 6 percent next year.

b. In the next period, people correctly forecast that a tax cut will cause the inflation rate to rise to 8 percent.

c. In the next period, they anticipate that the Fed’s hike in the discount rate will cause the inflation rate to fall to 4 percent.