Consider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary positive demand shock would lead to output above potential in period 1, but below potential in period 2. Answer true or false. Please briefly explain your answer.

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Unemployment and Cost of Unemployment

Unemployment is the state of being unemployed, even when an individual is actively seeking work opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed.