The accompanying diagram shows the inflation rate in Canada from 1980 to 2017.

a. From 1980 to 2017, Canada experienced two periods of disinflation€”the first between 1980 and 1985 and the second between 1991 and 1994. How would you have expected the unemployment rate to behave during these two periods?

b. Nowadays, policy makers react forcefully when the inflation rate rises above a target rate of 2%. Why would it be harmful if inflation rose from 1.8% (the level in 2010) to, say, a level of 5%?

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Inflation rate 14% 12 10 my 1990 2000 2011 1980 Year Data from: Statistics Canada.