3. Phillips Curve (15 points). An economy has the following Phillips Curve equation: It = En - NIH (u - 7) where x represents inflation, Ex represents expected inflation, and u represents the unemployment rate. For this problem, express all inflation rates and unemployment rates in terms of percentages (not in decimal form). a.) Assume inflation is equal to expectations at a rate of 2 percent. Calculate the natural rate of unemployment. Graph the Phillips Curve below and label the equilibrium values of inflation and the unemployment rate. Label the x- and y-axes with the proper variables. b.) Assume inflation has been stable at 2 percent, so the public expects 2 percent inflation in the future. Suppose there is unexpectedly high inflation such that the rate rises to 4 percent. Calculate the economy's unemployment rate in this case. Show the effects on the Phillips Curve in your graph from part b.). c.) Does this result hold in the long run? If not, describe how the equilibrium changes. What happens to unemployment? What happens to inflation? Why does this change take place? Show the long-run equilibrium on your graph above