Suppose an economy with Phillips curve An = 0.5(u 0.06), has a current inflation rate of 10% Propose a mechanism the central bank can use to lower the inflation rate to 5% and determine the new...

Extracted text: Suppose an economy with Phillips curve An = 0.5(u 0.06), has a current inflation rate of 10% Propose a mechanism the central bank can use to lower the inflation rate to 5% and determine the new short-run unemployment rate. Graph the Phillips curve, then show and describe: a. how the economy responds to an exogenous jump in prices b. how the Philips curve responds in the long run.