3. Monetary Policy Using the Phillips Curve. 20 points In recent years, people have had fairly constant expectations of inflation around 2 percent. We will explore how people's expectations affect the Fed's policy behavior. Suppose the Phillips Curve is given by It, = 167 - B(4, - 1) +V and short-run fluctuations in output and employment are captured by this version of Okun's Law %AY - -2(up - 1) Assume that v - 0, B - 0.5, and u =4. (a) Assume that people have "sticky" expectations, and 7 = 2%. Suppose there is a consumption shock and output falls by 4%, what do we expect realized inflation to be if there is no monetary response by the Federal Reserve? (4 points)