Suppose that an economy has the Phillips curve

=_-1- 0.5(u- 0.06).

1. What is the natural rate of unemployment?
2. Graph the short-run and long-run relationships between inflation and unemployment.
3. How much cyclical unemployment is necessary to reduce inflation by 5 percentage points? Using Okun's law, compute the sacrifice ratio.
4. Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give two scenarios that will achieve that goal.