A worldwide drought has reduced food production. Inflation has increased, unemployment has risen above the natural rate, Pakistani’s are frustrated with their government. Your roommate says, "This economic mess has got to be somebody's fault-probably the Prime Minister or National Assembly. A year ago, both inflation and unemployment were lower. We need to vote in some policymakers that know how to get rid of this inflation and unemployment." a. If policymakers increase aggregate demand in response to the supply shock, in what direction will the economy move along the new short-run Phillips curve? What will happen to inflation and unemployment? b. Is there a policy that can immediately reduce both inflation and unemployment? Explain.

A worldwide drought has reduced food production. Inflation has increased, unemployment has risen above the natural rate, Pakistani’s are frustrated with their government. Your roommate says, "This economic mess has got to be somebody's fault-probably the Prime Minister or National Assembly. A year ago, both inflation and unemployment were lower. We need to vote in some policymakers that know how to get rid of this inflation and unemployment." a. If policymakers increase aggregate demand in response to the supply shock, in what direction will the economy move along the new short-run Phillips curve? What will happen to inflation and unemployment? b. Is there a policy that can immediately reduce both inflation and unemployment? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A worldwide drought has reduced food production. Inflation has increased, unemployment has risen
above the natural rate, Pakistani's are frustrated with their government. Your roommate says, "This
economic mess has got to be somebody's fault-probably the Prime Minister or National Assembly. A
year ago, both inflation and unemployment were lower. We need to vote in some policymakers that know
how to get rid of this inflation and unemployment."
a. If policymakers increase aggregate demand in response to the supply shock, in what direction
will the economy move along the new short-run Phillips curve? What will happen to inflation
and unemployment?
b. Is there a policy that can immediately reduce both inflation and unemployment? Explain.

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