The Medium Run and the Phillips Curve

1)Show and explain how Friedman and Phelps use the empirically estimated Phillips Curve relation to explain stagflation.

2)The concept of NAIRU was derived from the Inflation-Expectations Adjusted PC relation. Explain the meaning of NAIRU and how the FED used it as the foundation for its monetary policy framework during the so-called Great Moderation.

3)Some in the FED admit they no longer have an operative theory of inflation. Mainstream economists believe the policy used in Part B is what helped bring about the Great Moderation. Discuss the alternative explanation for the low inflation environment that was created during this period, and why it might also explain the most recent change in the relationship underlying NAIRU.