Please answer all parts of the following question:

Question 2. An economy has the following equation for the Phillips curve: 71' = Ear 0.5(u 6) People form expectations of ination based on the following rule: E'' = 0.87T_1 Okun's Law for this economy is: Y Y. AY = 1 = 3.0 2(u 11-1) Yl In the year of 2019, the economy was at its natural level of unemployment with a stable ination rate of 5 percent. (a) Compute the natural rate of unemployment for 2019. (b) Graph the short-run trade-off between ination and unemployment that this economy faced in 2019. Label the point where the economy begins as point A. Be sure to numerically label your graph. (0) Assume that in 2020 as a result of a shutdown, the unemployment rate suddenly grew by 3 percentage points. What will the new ination rate be? On your graph in part (b), label the point the economy experiences that year as point B. (d) Compute the economy's sacrice ratio going from 2019 to 2020. Briey state the meaning of the sacrice ratio you calculated. (e) Now assume that in 2021, the unemployment rate fell back to its natural level. Con- struct a table to show the economy's transition from 2019 till 2022 in terms of 11', En, u and AY. (f) On the same graph used in part (b), graph the short-run trade-off the economy faces in 2022. Label the point where the economy nds itself as point 0, again using numerical values. (g) Compare the equilibrium in 2019 with 2022. How much does ination change? How many percentage points of output are lost during the transition