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. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural rate of output in this economy is $6 trillion.

. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural rate of output in this economy is $6 trillion.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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2. The Phillips curve in the short run and long run

In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph.

Suppose the natural rate of output in this economy is $6 trillion.

 

NOTE: 

OPTIONS FOR BLANKS ARE:

1. The short-run Phillips curve is ______ (a vertical OR a downward sloping OR an upward sloping)

2. Because output at point C is _____ (less than OR greater than OR equal to) the natural rate of output, the unemployment rate associated with outcome C is _____ (less than OR greater than OR equal to)

3. This line is _____ (a vertical OR a downward sloping OR an upward sloping)

2. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2022 and AS on the following graph. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Suppose the natural rate of output in this economy is $6 trillion. Unemployment Rate Inflation Rate A 7% On the following graph, use the green line (triangle symbol) to plot the long-run aggregate-supply (LRAS) curve for this economy. 5% (? Based on your answers to the previous questions, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2024. 108 107 LRAS AS 106 B 105 Outcome C 8 104 7 AD 2023 SRPC 103 AD, 6 A ADA 102 5 LRPC 101 4 100 2 10 12 14 16 OUTPUT (Trillions of dollars) 1 Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2024 will be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues an expansionary policy, aggregate demand in 2 3 4 5 UNEMPLOYMENT RATE (Percent) 6 7 2024 will be given by the ADB curve, resulting in the outcome illustrated by point B. The following table gives projections for the unemployment rates that would occur at point A and point B. Consider what the rate of inflation would be between 2023 and 2024, depending on whether the economy moves from the initial price level of 102 to the price level at outcome A or the price level at outcome B. PRICE LEVEL INFLAT ION RATE (Percent)
Transcribed Image Text:2. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2022 and AS on the following graph. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Suppose the natural rate of output in this economy is $6 trillion. Unemployment Rate Inflation Rate A 7% On the following graph, use the green line (triangle symbol) to plot the long-run aggregate-supply (LRAS) curve for this economy. 5% (? Based on your answers to the previous questions, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2024. 108 107 LRAS AS 106 B 105 Outcome C 8 104 7 AD 2023 SRPC 103 AD, 6 A ADA 102 5 LRPC 101 4 100 2 10 12 14 16 OUTPUT (Trillions of dollars) 1 Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2024 will be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues an expansionary policy, aggregate demand in 2 3 4 5 UNEMPLOYMENT RATE (Percent) 6 7 2024 will be given by the ADB curve, resulting in the outcome illustrated by point B. The following table gives projections for the unemployment rates that would occur at point A and point B. Consider what the rate of inflation would be between 2023 and 2024, depending on whether the economy moves from the initial price level of 102 to the price level at outcome A or the price level at outcome B. PRICE LEVEL INFLAT ION RATE (Percent)
The short-run Phillips curve is line: O Representing the tradeoff between unemployment and inflation At the natural rate of unemployment At the natural rate of output Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate-demand curve remains at ADg. Designate the long-run equilibrium that would follow such a policy as outcome C. Going back to the first graph, place the grey point (star symbol) at outcome C. Because output at point C is the natural rate of output, the unemployment rate associated with outcome Cis the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the long-run Phillips curve (LRPC) on the second graph. This line is line: At the natural rate of output O Representing the tradeoff between unemployment and inflation O At the natural rate of unemployment
Transcribed Image Text:The short-run Phillips curve is line: O Representing the tradeoff between unemployment and inflation At the natural rate of unemployment At the natural rate of output Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate-demand curve remains at ADg. Designate the long-run equilibrium that would follow such a policy as outcome C. Going back to the first graph, place the grey point (star symbol) at outcome C. Because output at point C is the natural rate of output, the unemployment rate associated with outcome Cis the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the long-run Phillips curve (LRPC) on the second graph. This line is line: At the natural rate of output O Representing the tradeoff between unemployment and inflation O At the natural rate of unemployment
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