14 - #1 The typical Phillips curve is shaped that way...

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#1. The typical Phillips curve is shaped that way because it is dealing with the relationship between unemployment and inflation. When unemployment falls inflation rises. In order to reduce inflation policymakers, have to accept a small rise in employment. #2. Policy makers would be willing to use expansionary policy to reduce un-employment just like the Phillips curve suggests. These policies assume the inflation expectations will adjust with a noticeable lag allowing some tradeo between inflation and unemployment. #3. By keeping unemployment under the natural rate it will cause an increase in inflation because lower level of productivity is occurring. Productivity and wages are equal; and when there are unemployment productivity decreases raising inflation. 4. No, people sometimes expect too much and do not rely on past experiences which can result in invalid future predictions and expectations. If adaptive expectations are backward looking, rational expectations are forward looking.

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