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Consider an economy has the following Phillips curve with adaptive expectations: =10.5(u0.06)=10.5(u0.06) . Suppose the Fed wants to reduce the inflation rate from 8 percent

Consider an economy has the following Phillips curve with adaptive expectations: π=π−1−0.5(u−0.06)π=π−1−0.5(u−0.06).

Suppose the Fed wants to reduce the inflation rate from 8 percent to 3 percent in 5 years, beginning in 2012. How much cyclical unemployment is necessary each year if the Fed wants to reduce the inflation rate to 3 percent by 2016 (5 years)?

YearsPi - Pi-1PiPi-1UUn
2009.08.08.08.06
2010.08.08.08.06
2011.08.08.08.06
2012




2013




2014




2015




2016




2017




2018




2019




2020




a. Complete the table through 2020.

b. Present a Phillips Curve Graph showing the adjustment from 2011 to 2016.


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