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Suppose that an economy has the Phillips Curve = ( ) 0.5( ) Assume that the economy follows a simple form of Adaptive Expectations such

Suppose that an economy has the Phillips Curve

= () 0.5( )

Assume that the economy follows a simple form of Adaptive Expectations such that expectations about the current inflation are the value observed in the previous period. Suppose that current inflation is 20% and that the natural rate of unemployment is 6%. If the central bank decides 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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