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Question 2 Answer both parts. (a) Explain the formation of expected inflation. Discuss the differences between the original Phillips curve and its expectations augmented version.

Question 2

Answer both parts.

(a) Explain the formation of expected inflation. Discuss the differences between the original

Phillips curve and its expectations augmented version.

[20 marks]

(b) "The Phillips curve exists as long as governments can refrain from exploiting it". Discuss.

[30 marks]

[Total 50 marks]

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