3. Answer the following parts of the question.

(a) Explain the difference between the original Philips Curve and the Expectations-augmented Philips Curve. What could explain the breakdown of the original Philips Curve in the US in the 1970s? (50 marks)

(b) Discuss the difference between rational expectations and adaptive expectations and the implications on the short-run and long-run trade-offs between unemployment and inflation. (50 marks)