Assume that an economy is initially at the natural rate of unemployment.

a. Use the AD-AS and Phillips curve diagrams to illustrate and explain how the inflation rate and unemployment rate respond both in the short run and in the long run to an unexpected expansionary monetary policy.

b. Use the AD-AS and Phillips curve diagrams to illustrate graphically how the inflation rate and unemployment rate respond both in the short run and in the long run to the announcement of a credible plan of expansionary monetary policy when people have rational expectations.