Consumer Price Inflation has increased significantly over the past few months in major OECD countries including US and Australia (graph above).

a) List and explain at least 2 drivers behind this increase in inflation.

Suppose the Australian economy has the following Phillips Curve: 1 = 0.45( ) b) Explain the concept of sacrifice ratio.

c) Calculate the sacrifice ration for the Australian Economy.

d) The current inflation is 6.1% in Australia. Suppose the RBA wants to bring inflation down from 6.1% to 2.5%, how many percent of unemployment RBA has to sacrifice if it decided to do it over 2 years?

Suppose consumers form inflation expectations according to both their past experience (1) and central bank's target( ): = 1 + (1 ) Where determines the relative weight placed on past inflation experience. Over the weekend you have heard the Fed Chairman Jeromy Powell vowed to fight inflation by "using our tools forcefully" and "The historical record cautions strongly against prematurely loosening policy."

e) Describe what impact does this have on the value of ?

f) Suppose the public is fully convinced by Chairman Powell, what impact does this impact on the sacrifice ratio?