1. Inflation and the Phillips Curve

a. The Phillips curve is an attempt to explain a causal relationship between some of our macroeconomic variables. Briefly explain the steps in this causal chain, how a change in one variable is supposed to affect another.

b. Think of our simple graph depicting the Phillips curve from class. When we say it has "gotten flatter" describe what this means in terms of the two variables in one to two sentences.

2. Monetary Policy Rule A basic monetary policy rule we discussed is that when inflation changes unexpectedly the central bank should adjust its policy rate in the same direction and more than the change in inflation. Why is this thought of as an essential move by the central bank?