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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Consider an economy has the following Phillips curve with adaptive expectations: $π = π - 1 - 0.5 (u - 0.06)$ .

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
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.

Related Book For answer-question

Money Banking and Financial Markets

ISBN: 978-1429244091

2nd edition

Authors: Laurence M. Ball

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Posted Date: May 11, 2020 12:44 PM

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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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a Equation of Phillips curve 105u006105u006 Inflation rate 8 and t... View the full answer

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