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2. Suppose an economy has the Phillips curve 7 =m-10.5(u5). a. What is the natural rate of unemployment? b. Graph the short-run and long-run relationships
2. Suppose an economy has the Phillips curve 7 =m-10.5(u5). a. What is the natural rate of unemployment? b. Graph the short-run and long-run relationships between inflation and unemployment. c. How much cyclical unemployment is necessary to reduce inflation by 4 percentage points? Using Okun's law, compute the sacrifice ratio. d. Inflation is running at 6 percent. The central bank wants to reduce it to 2 percent. Give two scenarios that will achieve that goal
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