Using the Phillips Curve framework, explain how there is a
trade-off between unemployment and inflation. Use a graph and
equation to model this trade-off. Then show with a graph and
equation what happens if inflation expectations increase from, for
example, 3% to 8%. Graph and explain.
Assume the natural rate of unemployment is 4%. Currently, the
unemployment rate is 8%. Last period the economy experienced 5%
inflation. Using the concepts of the Phillips Curve, discuss your
diagnosis for the economy...