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(8) (6 points) The expectations-augmented Phillips curve is 71' = we 2(11. 0.06) Graph the long-run Phillips curve and the short-run Phillips curve for an

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(8) (6 points) The expectations-augmented Phillips curve is 71' = we 2(11. 0.06) Graph the long-run Phillips curve and the short-run Phillips curve for an expected ination rate of 0.04. If the Fed chooses to keep the actual ination rate at 0.04, what will be the unemployment rate? Label the equilibrium point "A". What is the numerical value of the natural rate of unemployment? Suppose an aggregate demand shock raises the ination rate to 0.06 (the natural rate of unemployment and the expected ination rate are not affected). Show what happens on your graph. Label the equilibrium point "B". What is the numerical value of the unemployment rate? In response to the aggregate demand shock, suppose the Fed allows the ination rate of 0.06 to persist. Show what happens on your graph, labeling the equilibrium point "C". In the long run, what is the numerical value of the unemployment rate

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