M&B3 3rd Edition by Dean Croushore

Exercise 4

The relationship between infl ation and unemployment is given by

a Graph the long-run Phillips curve and three different short-run Phillips curves.
b What is the value of the natural rate of unemployment
c If actual infl ation is 2 percent and expected infl ation is 5 percent, what is the unemployment rate
d If actual infl ation is 8 percent and expected infl ation is 5 percent, what is the unemployment rate