Suppose that an economy has the Phillips curve

a. What is the natural rate of unemployment?

b. Graph the short-run and long-run relationships between inflation and unemployment.

c. How much cyclical unemployment is necessary to reduce inflation by 4 percentage points? Using Okun’s law, compute the sacrifice ratio.

d. Inflation is running at 6 percent. The central bank wants to reduce it to 2 percent. Give two scenarios that will achieve that goal.

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= -10.5(u - 5).