Reference no: EM131886003

Let us suppose the Reserve Bank of Australia implements a disinflation policy to reduce the inflation rate from 8% to a target of 3% over a period of four years. In the first year of the policy the unemployment rate reaches 9%, in the second year the unemployment rate declines to 8%, in the third year it is 7% and, then, in the fourth year, when the inflation target is reached, the unemployment rate is 5%. Supposing the natural rate of unemployment is estimated to be 5.5% over this period, how would you measure the social cost of this disinflation policy?