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helphelphelp he expectations-augmented Philips curve equation is given by IT = TTe- 4 (u -u) (a) Draw a diagram showing the long-run Philips curve and

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he expectations-augmented Philips curve equation is given by IT = TTe- 4 (u -u) (a) Draw a diagram showing the long-run Philips curve and short-run Philips curves that contain the following points. Suppose the unemployment rate u at point A is 5%. Label points A, B, C and D in your diagram. (8 marks) A: IT = 4% , TTe= 4% B: It = 2% , TTe= 2% C: IT = 6% , TTe = 4% D: IT = 1% , TTe = 2% (b) List at least two major costs of inflation, being sure to distinguish between anticipated and unanticipated inflation. (4 marks) (c) Describe the principal costs of unemployment. (2 marks) (d) State and briefly explain whether or not the empirical evidence generally supports the belief that there is a fixed trade-off between unemployment and inflation, such that monetary policymakers can achieve the combination they prefer. (6 marks)

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