Answer TWO questions The maximum word limit in each question is 500 (excluding equations and diagrams) and in total 1,000 (plus/minus 10%). 1. With reference to the Phillips Curve, examine how the addition of adaptive expectations can explain the negative relationship between inflation and unemployment in the short and long run period. Would the addition of rational expectations generate the same result? (100 marks) 2. Outline the basic assumptions of the New Classical Macroeconomics. Given these, does the "Policy Ineffectiveness Proposition" appear likely to be correct in the real world? (100 marks)