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

A definite thumbs up and a feedback assured.

Thank you