Answer Happy

1) Answer the questions below based on the following data. Point A: Point B: Point C: Point D: Actual inflation. 2% 4% 2% 4% a) Suppose the equation describing the Phillips curve is Expected inflation * = n²-2(U-5). 2% 4% 4% 2% For each of the points: A, B, C, and D, calculate the unemployment rate. Draw the Phillips Curve based on these values. (3 points) b) Based on the equation in part a, what is the numerical value of the natural rate of unemployment? How do you know? (1 point) 2) Suppose the economy is thought to be 2 percent below potential (i.e., the output gap is -2 percent), when potential output grows 4 percent per year. Suppose the Fed is following the Taylor rule, with an inflation rate of 3 percent over the past year. The federal funds rate is currently 3 percent. The long-run equilibrium real fed funds rate is 3 percent and the weights on the output gap and inflation gap are 0.5 each. The inflation target is 1 percent. Is the fed funds rate currently too high or too low? By how much? Show your work. (2 points)