Consider an economy has the following Phillips curve with adaptive expectations: =10.5(u0.06)=10.5(u0.06) . Suppose the Fed wants
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Question:
Consider an economy has the following Phillips curve with adaptive expectations: π=π−1−0.5(u−0.06)π=π−1−0.5(u−0.06).
Suppose the Fed wants to reduce the inflation rate from 8 percent to 3 percent in 5 years, beginning in 2012. How much cyclical unemployment is necessary each year if the Fed wants to reduce the inflation rate to 3 percent by 2016 (5 years)?
Years | Pi - Pi-1 | Pi | Pi-1 | U | Un |
---|---|---|---|---|---|
2009 | .08 | .08 | .08 | .06 | |
2010 | .08 | .08 | .08 | .06 | |
2011 | .08 | .08 | .08 | .06 | |
2012 | |||||
2013 | |||||
2014 | |||||
2015 | |||||
2016 | |||||
2017 | |||||
2018 | |||||
2019 | |||||
2020 |
a. Complete the table through 2020.
b. Present a Phillips Curve Graph showing the adjustment from 2011 to 2016.
Please provide a context for this.
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