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Assuming that the booming economy is currently at an inflation rate such that unemployment is below the natural level. (a) How does the economy return

Assuming that the booming economy is currently at an inflation rate such that unemployment is below the natural level.

(a) How does the economy return to the natural rate of unemployment if this inflation rate persists? Critically analyse your answers using the sticky-wage theory.[5 marks]

(b) If the government wants to bring the output back to the natural level by changing the tax rate, how should it respond?

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