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I kindly some assistance in this questions Suppose aggregate supply in the United Kingdom is Y = Y* + 50(n - I ), where Y

I kindly some assistance in this questions

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Suppose aggregate supply in the United Kingdom is Y = Y* + 50(n - I ), where Y denotes output, Y" denotes potential output, i denotes the inflation rate and i denotes the expected rate of inflation. Also Y-Y' =- 10(u - u"), where u denotes the unemployment rate and u" denotes the equilibrium (or natural) rate of unemployment. (a) Find the expectations augmented short-run Phillips curve for this economy and sketch it in a diagram, explaining its shape. Add the long-run Phillips curve to your diagram and explain its shape. [8 marks] (b) The Bank of England has an inflation target of 2 per cent. However, inflation in the UK has been below target at 1 per cent due to the economic effects of the coronavirus pandemic. Analyse the effects on unemployment, output and inflation in the short-run and long-run if: (1) the inflation target is credible (ii) expectations are adaptive, so I; = 1-1. [8 marks] (c) Suppose the inflation rate is on target at 2 per cent. However, it is a widely held belief that the United Kingdom's departure from the European Union (known as 'Brexit' ) will increase the inflation rate through higher import prices. Could such a belief be self-fulfilling? [6 marks] (d) "The specific inflation target does not matter, provided it is credible. " Do you agree with this statement? Explain why, or why not. [8 marks]2) Suppose Okun's Law is given by U - U* = -0.5 () where U is the actual rate of unemployment, U* is the natural rate of unemployment, Y is the actual level of output and Y" is the potential level of output. Suppose further that the Phillips Curve for your economy is given by it = n - 0.30(U - U") + p. Where a is the actual rate of inflation, , is the expected rate of inflation and p is a negative shock term that is positive when the economy undergoes a negative shock and negative if the shock is positive. a) Derive the short-run dynamic aggregate supply curve (in terms of inflation not in terms of price levels) b) What is the level of inflation if Y = $8 million? $10 million? $12 million? Assume n'= 1,-, = 3 and p = 0. Assume that potential output Y* = $10 million. Provide a diagram for your results. c) Now suppose Y = $12 million, In time t and stays there for three subsequent periods. Calculate inflation in time t + 1, t + 2 and t + 3. Continue to assume that Y" = $10 million, * = 1-; = 3 and p = 0. Provide a diagram to show your results d) Suppose in time t, the economy experiences a negative shock such that p = 2 for one period but the government introduces AD policy to keep output at Y = $10 million. Calculate inflation in time t + 1. , t + 2 and t + 3. Continue to assume that Y* = $10 million, and n* = 1,) = 3. Does inflation remain elevated forever? Explain. e) Finally, suppose the same shock occurs in time t, but this time the government does nothing such that output falls to Y = $8 million. As in part (d) the shock lasts for just one period. Calculate inflation in time t + 1, t + 2 and t + 3. Continue to assume that Y"* = $10 million, and m = 1-1 = 3. Explain your

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