1. This question is intended to walk you through a stylized example indicating that ex- pected inflation has a cost when there is lack of indexation in the economy. So suppose that for the annual labor income bracket [40,000, 59,999], taxes on labor income are 10%, for the labor income bracket [60,000, 79,999], taxes on labor income are 20%, and for the labor income bracket [80,000, 99,999], taxes on labor income are 30%. (a) Suppose that your gross annual labor income is $70,000 when there is no inflation and that when there is inflation, it increases by exactly the same percentage as inflation. If the inflation rate is 15% and the labor income brackets above are not indexed by inflation (i.e., they remain unchanged), are you hurt by inflation? Provide a numerical calculation to illustrate your answer. (b) How can the costs of inflation illustrated by your answer above be eliminated if inflation is expected? Defend your