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Suppose That the Expectations-Augmented Phillips Curve Were Operable with the Expected

Question 2

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Suppose that the expectations-augmented Phillips curve were operable with the expected rate of inflation equaling last year's rate; and let each 3-point reduction in GDP below its potential lower inflation by 1 point. Reducing inflation from 10 to 8 percent in one year would then require


A) unemployment to run at around 6 percent for the entire year.
B) unemployment to run at around 7 percent for the entire year.
C) unemployment to run at around 8 percent for the entire year.
D) unemployment to run at around 9 percent for the entire year.
E) unemployment to run in excess of 10 percent for an entire year.

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