Suppose that inflation currently is about 2 percent. Last year, the Fed took action to maintain inflation at this level. Now, the economy is to grow too quickly, and reports indicate that inflation is expected to increase during the next five years. Assume that the rate of inflation expected for the next year (Year 1) is 2 percent; the following year (Year 2) it is expected to be 3 percent; three years from now (Year 3) it is expected to be 5 percent; and every year thereafter, it is expected to settle at 4 percent.