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Question 1 Assume that inflation and social welfare are given by = e - ( u - u ) and S= - u - /2

Question 1

Assume that inflation and social welfare are given by

=

e

-

(

u

-

u

) and S=

-

u

-

/2

2

respectively.

We also assume that the expected inflation

e

has been set by the time the central bank gets

to make its decisions

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