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Suppose the economy has the Phillips Curve pi = pi^e - 0.25(u-.04).

a. Find the natural rate of uemployment

b. Graph the short run Phillips curve if the expected rate of inflation is 3 percent or 0.03

c. What is the sacrifice ratio in this economy?

d. If the central bank has a loss function of L(pi) = (pi)^2, what is the optimal level of inflation in this economy?

e. Given the loss function in d, what is the resulting long run rate of unemployment?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9474664

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