Commodity-rich Australia is one of the very few countries to receive an economic growth upgrade by the International Monetary Fund, after the global outlook was slashed due to war in Ukraine and soaring inflation." (Financial Review, 11 April 2022). "Australia's economy has received a boost from the surge in the price of commodities such as gas, iron ore, coal and wheat", said IMF division chief for Australia, Harald Finger.

1. Assume that the relationship between the inflation rate and the unemployment rate is described by the Phillips curve as follows:

t=t-1-(ut- un)

where t represents inflation rate in year t; ut is the unemployment rate in year t; un is the natural rate of unemployment. Furthermore, assume the inflation rate in 2021 was 2% ( t-1=et=2%) , and ut-1=un 5.5%, =0.34. If there was an increase in C, I, and NX, what would be the impact on the inflation rate in Australia in 2022? Explain your answers by using the Phillips curve diagram. Use information from part (c) for ut. (6 marks