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QUESTION
Consider an expectations-augmented Phillips Curve of the following form: t = a [( u n / u t ) - 1] + b t e where b = 1 and adaptive expectations: t e...
πte = πt-1.
Show more (a) What are the requirements for a constant rate of inflation over time?
(b) What will be the behaviour of inflation when ut < un and what is the economic meaning of this behaviour?
(c) What will be the behaviour of inflation when ut > un and what is the economic meaning of this behaviour?
