Suppose an economy is subject to the following Phillips curve: 7 =En -0.6(u-0.05) Where, ETT = .04 is the current inflation expectation. a) Draw the figure of short-run and long-run relationships between inflation and unemployment of the above Philips curve. (3 points) b) Suppose the central bank reduces the inflation rate by 1 percentage point. How does that affect the unemployment rate in the short run and in the long run, in the following two cases: b1). Households fully anticipate the reduction of inflation (3 points) b2). Households don't anticipate the reduction of inflation. (3 points) c) Now, assume that the Philips Curve is equal to 7 =1-1-0.6(u-0.05), where It_1 = 0.04 is the inflation rate of the last year. Considering the Lucas critique, should policymakers use this Philips Curve for making policy? Why? (3 points)