Policy Goal of Anchoring Inflation Expectations

Imagine a country's central bank implements a policy that raises the unemployment rate from 4% to 7%. This policy is maintained for several years, during which the inflation rate falls from a persistent 10% to a stable 2%. After this period of adjustment, the economy recovers, and the unemployment rate returns to 4%. Which of the following outcomes is the most likely new inflation rate at 4% unemployment, and what is the best explanation for this change?

Analyzing a Disinflationary Episode

An economy is experiencing persistently high inflation. A new policy is enacted that raises unemployment, and this higher unemployment is maintained for several years. Arrange the following events in the correct chronological order to show how this policy can result in a lasting reduction in the inflation rate.

Evaluating the Costs of Disinflation