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2. The Phillips curve in the short run and long run In the year 2020, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2020 and AS on the following graph. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 108 107 LRAS AS 100 Outcome C 103 102 AD 100+ 100 2 10 OUTPUT (Troof dolar) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2021 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 2021 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 2020 and 2021, 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. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Unemployment Rate Inflation Rate 6% B 3% PRICE LEVEL AD₂ love AD₂

2. The Phillips curve in the short run and long run In the year 2020, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2020 and AS on the following graph. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 108 107 LRAS AS 100 Outcome C 103 102 AD 100+ 100 2 10 OUTPUT (Troof dolar) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2021 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 2021 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 2020 and 2021, 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. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Unemployment Rate Inflation Rate 6% B 3% PRICE LEVEL AD₂ love AD₂

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 2021. SRPC LAPC INFLATION RATE (Parent) 0 The short-run Phillips curve is 1 2 3 4 6 UNEMPLOYMENT RATE (Parent) 7 line: At the natural level of output At the natural rate of unemployment Representing the tradeoff between unemployment and inflation Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADB. 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 associated with outcome C is the natural level of output, the unemployment rate 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 level of output At the natural rate of unemployment Representing the tradeoff between unemployment and inflation
Transcribed Image Text: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 2021. SRPC LAPC INFLATION RATE (Parent) 0 The short-run Phillips curve is 1 2 3 4 6 UNEMPLOYMENT RATE (Parent) 7 line: At the natural level of output At the natural rate of unemployment Representing the tradeoff between unemployment and inflation Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADB. 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 associated with outcome C is the natural level of output, the unemployment rate 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 level of output At the natural rate of unemployment Representing the tradeoff between unemployment and inflation
2. The Phillips curve in the short run and long run In the year 2020, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2020 and AS on the following graph. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 100 107 LRAS AS 106 Outcome C 102 AD₂ 101 100 2 14 16 10 OUTPUT (Trillions of dollars) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2021 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 2021 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 2020 and 2021, 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. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Unemployment Rate Inflation Rate A 6% % 3% % PRICE LEVEL 103 ค Who AD₂₂
Transcribed Image Text:2. The Phillips curve in the short run and long run In the year 2020, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2020 and AS on the following graph. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 100 107 LRAS AS 106 Outcome C 102 AD₂ 101 100 2 14 16 10 OUTPUT (Trillions of dollars) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2021 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 2021 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 2020 and 2021, 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. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Unemployment Rate Inflation Rate A 6% % 3% % PRICE LEVEL 103 ค Who AD₂₂
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