*7 An economy with a natural rate of unemployment of 4 per cent and an expected inflation rate of 6 per cent a year has the following inflation and unemployment history:

Year Inflation rate (per cent per year) Unemployment rate (percentage of workforce) 1999 10 2000 8 2001 6 2002 4 2003 2 23456 2 5 6 a Draw a diagram of the economy’s short-run and long-run Phillips curves. b If the actual inflation rate rises from 6 per cent a year to