1. In?ation and unemployment are two crucial economic items of interest to the public. Is it possible to explain one without the other? Present at least one theory that explains each independently of the other and one theory that establishes their interdependence. Is there a genuine difference between these theories or do they merely represent a distinction between the impact and long-term effects of an exogenous change to their determinants?
2. Present a model with rational expectations and the Friedman-Lucas supply function. If policy makers and the public have the same information, can stabilization policies in a stochastic context change aggregate demand and output (i) in the short run, (ii) in the long run?