Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer.

An economy is currently in a recession.

(a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X.

(b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate?

(c) Will borrowers on fixed-rate loans benefit from the situation that you identified in part (b)? Explain.

(d) On your graph in part (a), show how the economy will adjust in the long run in the absence of any discretionary policy action.