a) In the 1970s and 1980s, which curve short-run Phillips curve characterised New Zealand? SPC1 or SPC2? How do you know this? b) Which short-run Phillips curve characterises New Zealand now? How do you know this? c) If the government were to start an expansionary policy aimed at targeting the current low inflation rate (i.e. expansionary policy to increase inflation), which one of the following would happen immediately (short-run): would the economy shift along the existing Phillips Curve or would there be a shift of the Phillips Curve upwards? What would happen to the unemployment and inflation rates in the short run? d) Following on from c), what would happen to input prices and nominal wages in the long run? What would this do to the short-run Phillips curve? In the long run, what happens to the unemployment rate and the inflation rate? e) How does the long-run Phillips curve relate to the concept of the natural rate of unemployment?3) The Phillips Curve is an important tool to understanding the link between inflation and unemployment. New Zealand in the 1970's and early 198's was a country suffering from the effects of stagflation. Inflation expectations were relatively high compared to now in addition to higher levels of unemployment. Currently, in contrast, inflation expectations are relatively low. Use Figure 1 illustrating some short-run Phillips curves and a long-run Phillips curve to answer the different parts of this question. Figure 1: Phillips Curve LPC Inflation SPC, SPC un Unemployment