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Suppose that the Phillips curve is given by 71} = 7r;a +0.1 2a,; (a) Given this equation nd the natural rate of unemployment Assume that
Suppose that the Phillips curve is given by 71} = 7r;a +0.1 2a,; (a) Given this equation nd the natural rate of unemployment Assume that 7r;3 = (1 0)? + 977154 and suppose that 6 is initially equal to 0 and f = 0.03 and does not Change. Suppose that the unemployment rate is initially equal to the natural rate. In year t, the policymaker decides to bring the unemployment level down to 3% and hold it there forever. (b) What will be the ination rate in year (i) t+1, (ii) t+2, and (iii) t+5
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