This is the PC equation of your economy = E - 0.2(u - 0.06) You know that: E = 0.57_(-1) + 0.3_(-2) + 0.04^1/2_(-3) Your economy begins at its natural rate of unemployment with stable inflation of 4%. With this information please: A) Consider that the economy has been stable (inflation and unemployment) for 4 consecutive years. However, for any shock, in year 5 unemployment decreases to 3%. Calculate the inflation in year 5: % B) In year 6 the unemployment raises to 5%. Considering that year 5 closed with the inflation you estimated in the previous step, calculate the inflation in year 6: % C) The President of this country wants to close year 7 with an inflation of 3%. You have to calculate what the unemployment rate should be to reach this goal: %

Instruction for decimals: You have to use all decimals in your equation, but you have to use just three decimals prior your conversion to (%). l.e.if I obtained, after using all decimals in my equation, that inflation is 0.52345, I have to convert 0.523 to percentage (that would be 52.30) and write that number in the answer spot. Do not write the % symbol. Use (.) for decimals.