[av um: um, b) Suppose that the Phillips curve is given by: 11. t = 11'. + 0.08 \"ZU! where Tl is the inflation rate, :1c is the expected inflation rate and u is the rate of unemployment. i. How much is the natural rate of unemployment? ii. Assume, n\": = Brit1 and suppose that B (which is the weight that agents put on previous period inflation) is initially equal to 0. In year t, the government decides to bring the unemployment rate down to 2% and hold it there forever. Determine the rate of ination in years t, H 1, t + 2 and t +3. iii. Do you believe the answer given in (ii)? Why or why not? iv. Now assume that in year t + 4, 0 increases from 0 to 0.5. Suppose that the gIemment is still determined to keep u at 2% forever. Why might 9 increase in this way? v. How much will the ination rate be in years H 4, H 5 and HG? Comment on your answer. (20 marks) 3