1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2028, aggregate demand and aggregate supply in the fictional country of Gizmet are represented by the curves AD2028 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2029. The first potential aggregate-demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate-demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 AS ADB AD 2028 ADA 100 0 2 4 6 8 OUTPUT (Trillions of dollars) 10 12 14 16 Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would to be associated with the lower unemployment rate (3%). expect If aggregate demand is low in 2029, and the economy is at outcome A, the inflation rate between 2028 and 2029 is

1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2028, aggregate demand and aggregate supply in the fictional country of Gizmet are represented by the curves AD2028 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2029. The first potential aggregate-demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate-demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 AS ADB AD 2028 ADA 100 0 2 4 6 8 OUTPUT (Trillions of dollars) 10 12 14 16 Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would to be associated with the lower unemployment rate (3%). expect If aggregate demand is low in 2029, and the economy is at outcome A, the inflation rate between 2028 and 2029 is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. The Phillips curve in the short run and long run The following graph plots aggregate demand (AD) and aggregate supply (AS) for the imaginary country of Iguazu in the year 2027. Suppose the natural level of output in this economy is $7 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. PRICE LEVEL 108 107 LRAS AS 108 105 104 103 102 101 A AD AD 100 2 4 10 12 14 16 OUTPUT (Trillions of dollars) Outcome C Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B.…
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1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaginary country of Aso-Kuju are represented by the curves AD2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADB, resulting in the outcome given by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 AD 2027 2 4 B AS ADB ADA 8 10 6 OUTPUT (Trillions of dollars) 12 14 16 (?) Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect outcome B▼ to be associated with the lower unemployment rate (5%). If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between 2027 and 2028…
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