Suppose that the Phillips curve is given by _t = ^e_t + 0.2 - 2u_t

a)Calculate the natural rate of unemployment for this example.

Now assume that ^e_t = _t-1 and suppose is initially equal to zero.Suppose that the rate of unemployment is initially equal to the natural rate.In year t, the authorities decide to bring the unemployment rate down to 6% and hold it there forever.

b)Determine the rate of inflation in years' t, t +1, t + 2, and t + 3.

c). Do you think the answer you get in (b) is realistic? Why or why not?

Now suppose in year t + 3, increases from zero to one.Suppose that the government is still determined to keep u at 6% forever.

d)Why might increase in this way?

e)Determine the rate of inflation in years' t +4, t + 5, and t + 6.

f)Do you think the answer you get in (e) is realistic?Why or why not?

SHOW ALL YOUR WORK.