Question 3: Philips Curve..... 10 points Consider an economy that begins with inflation rate of 1%. The Federal Reserve is concerned that the inflation rate is too low and wants to get it back to a "target" of 4%. It does this by moving the economy along the Philips curve. According to the Federal Reserve's economists, the curve has the following equation Ax= (shocks are zero currently) The Federal Reserve is considering two options 1. Going Cold Turkey and achieving its target in the first year. 2. Gradually increasing inflation by 11% every year over three years. (i) (5 points) Write down the timeline of output gaps and inflation rates for each of the two options over the three year period. (ii) (5 points) If the natural rate of unemployment is 3%, write down the unemployment rate under both options for each of the three years.