In the short run, inflation_ and unemployment, Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.

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Chapter1: Making Economics Decisions
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3. Problems and Applications Q3
Suppose that a rise in government purchases causes an expansion.
On the following graph, shift one or both curves to reflect the short-run effect of the rise in government purchases.
Price Level
Inflation Rate
In the short run, inflation
Quantity of Output
LRPC
Aggregate Supply
O
Aggregate Demand
Unemployment Rate
On the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in government purchases.
SRPC
C
and unemployment
Aggregate Demand
Aggregate Supply
SRPC
Short-Run Outcome
?
LRPC
Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.
Transcribed Image Text:3. Problems and Applications Q3 Suppose that a rise in government purchases causes an expansion. On the following graph, shift one or both curves to reflect the short-run effect of the rise in government purchases. Price Level Inflation Rate In the short run, inflation Quantity of Output LRPC Aggregate Supply O Aggregate Demand Unemployment Rate On the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in government purchases. SRPC C and unemployment Aggregate Demand Aggregate Supply SRPC Short-Run Outcome ? LRPC Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.
Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.
On both of the previous graphs, shift the appropriate curve or curves to reflect the change that brings the economy to its long-run state.
After the expansion is over, the economy faces a
set of inflation-unemployment combinations.
Transcribed Image Text:Now suppose that over time, expected inflation changes in the same direction that actual inflation changes. On both of the previous graphs, shift the appropriate curve or curves to reflect the change that brings the economy to its long-run state. After the expansion is over, the economy faces a set of inflation-unemployment combinations.
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