3. Last year, both real output and the money supply increased by 6 percent. The infla¬ tion rate was 10 percent.

(a) . What is the Markov expectation of inflation this year?

(b) . If the adjustment factor is 1, what is the adaptive expectation of this year’s in¬ flation rate?

(c) . If the adjustment factor is .5 and last year’s forecast error was 6 percent, what is this year’s adaptive expectation of infla¬ tion?