Suppose that an economy has the Phillips curve
(a) What is the natural rate of unemployment?
(b) Graph the short-run and long-run relationships between inflation and unemployment.
(c) How much cyclical unemployment is necessary to reduce inflation by 5 percentage points? Using Okuni´s law, compute the sacrifice ratio.
(d) Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give two scenarios that will achieve that goal.