Initially, both actual and expected inflation is 2%. The unemployment rate is 7%, which is also the equilibrium unemployment rate. We have estimated the following Phillips curve: t = 0.5 (t n)

Then assume that the following data is observed for May 2020: Inflation has fallen to -1% and expected inflation has fallen to 1%. Equilibrium unemployment remains at 7%.

a) How high will unemployment be in May 2020 according to the estimated Phillips curve?

b) Draw the new and old Phillips curve in a figure with the unemployment on the horizontal axis and inflation on the vertical axis

c) Outline the points where the economy was before and after the change.