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Suppose that an economy has the Phillips Curve = ( ) 0.5( ) Assume instead that the economy follows Rational Expectations. Suppose that current inflation
Suppose that an economy has the Phillips Curve
= () 0.5( )
Assume instead that the economy follows Rational Expectations. Suppose that current inflation is 20% and that the natural rate of unemployment is 6%. If the central bank credibly announces its actions to lower inflation by 2% per year starting next year until the economy hits 10% inflation, what is the unemployment rate for each of the next five years?
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