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Suppose that the expectation augmented Phillips curve is given by: t - te = 0.4 - 6 ut Suppose 70 percent of employed workers have

Suppose that the expectation augmented Phillips curve is given by:

t - te = 0.4 - 6ut

Suppose 70 percent of employed workers have inflation-indexed wage contracts.

a. If te =0.6 t-1 find out how much the current inflation rate changes due to changes in the current unemployment rate.

b. If te = t-1 find out the relationship between ut, un , t and t-1

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