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Assume the economy is originally at the natural rate of unemployment of 5% and the current inflation rate is 3%. Also assume that all agents in the economy have full information and act rationally.

According to the Phillips curve if the monetary authority attempts to stimulate the economy, in the short run inflation will
Select Option fall below 3 percentrise above 3 percentbe 3 percent
and unemployment will
Select Option fall below 5 percentrise above 5 percentbe 5 percent
. In the long run, inflation will
Select Option remain above 3 percentremain below 3 percentreturn to 3 percent
and unemployment will
Select Option remain above 5 percentremain below 5 percentbe 5 percent
.
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