Assume that the Phillips curve is given by:

+

_t - _t-1 = (_t - m+z/a) ,

where = 0.03 and = 0.03.

a)What is the natural unemployment rate if = 1?If = 2;What is the relationship between and the natural unemployment rate?Explain your answer.

b)Suppose now that as a consequence of an increase in the price of oil, the

increases to 0.06.What is the new natural unemployment rate if a = 1?If a= 2;What is a's role in how the economy reacts to changes in aggregate supply?