2 Adaptive Expectations Assume that an economy has the Phillips Curve 7r 2 lE[1r] Mu u"). and assume initially we are at an equilibrium where 7r = lE[1r] = 0.07 and u = u\" = 00.6 and assume estimates suggest ,6 = 0.5. Furthermore, assume it's been determined that Canadian's ination expectations are best approx- imated by the following weighted moving average: (37Tt1 + 27112 + 7113) 6 K The economy is chugging along at this equilibrium from our initial period to until t2, but in t3 the Elm] = BoC successfully engages in open market operations (raising interest rates and slowing the growth ~ rate of the money supply) such that they are able to bring ination down to 2% (3 = 0.02). Furthermore the successfully hold ination at 2% from t3 to t7. (You are allowed to'use Excel for Questions 2.1 through 2.3, however, by hand is ne as well.) 1. In this scenario, what is the maximum rate of unemployment Canada will hit and in what period will it hit that maximum? 2. How many periods with unemployment be above the NAIRU (in, how long with cyclical unemployment be positive)? 3. Graph unemployment through time (so with to through t7 on the xasds)