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Problem 2. (30 points) Consider the following Phillips Curve 3) b) a = Err 0.6(u 0.05) Explain the above Philips Curve briey. Assume that E

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Problem 2. (30 points) Consider the following Phillips Curve 3) b) a = Err 0.6(u 0.05) Explain the above Philips Curve briey. Assume that E a" = 0.02. Draw the graph of the Phillips curve. What is the slope of the curve? What are the long-run unemployment rate and the long-run ination rate? Is there any possibility that a government can decrease the ination rate without any change in the unemployment rate?I If yes, how? Explain it. Is there any possibility that a government can increase the ination rate without any change in the unemployment rate?I If yes, how? Explain it. Considering the Philips Curve as r: = 0.02 0.6(u 0.05), and the government announces that it implements an expansionary monetary policy: it e1) Describe the Lucas Critique. O e2) Considering the Locus Critique, do you think that the above Philips curve is a good equation to study the relationship between ination and unemployment? Why? Explain it

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