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Unformatted text preview: ~ [ 2 2 2 2 2 + = n t U E Thus, R cb n N cb L U L + + + = 2 2 2 ) 1 ( ) 1 ( . d) Intuitively, one would expect that if the central bank has more information then it can achieve a better outcome. This is not the case, however, because the central bank can only achieve a better outcome by fooling the public. For the Phillips curve to give lower unemployment, expected inflation has to be positive. But since the public also has rational expectations, it sets wage inflation at the one value such that the central bank cannot improve unemployment by surprising the public with high inflation, and this value is positive....
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