The accompanying diagram shows the inflation rate in the United Kingdom from 1980 to 2016.

a. Between 1980 and 1985, policy makers in the United Kingdom worked to lower the inflation rate. What would you predict happened to unemployment between 1980 and 1985?

b. Policy makers in the United Kingdom react forcefully when the inflation rate rises above a target rate of 2%. Why would it be harmful if inflation rose from 0.7% (the level in 2016) to, say, a level of 5%?

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Inflation rate 18% 16 14 12 10 8 6 4 2 1980 1990 2000 2010 2016 Year Krugman/Wells, Essentials of Economics, 5e 2020 Worth Publishers Data from: Bank of England.