**Aggregate Demand, Aggregate Supply, and the Phillips Curve**In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves $AD_{\text{2027}}$ 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 $AD_{\text{A}}$, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled $AD_{\text{B}}$, resulting in the outcome given by point B.**Graph Explanation:**- **Axes**: The vertical axis represents the price level, while the horizontal axis represents output in millions of dollars.- **Lines**: - **AS** (Aggregate Supply): Upward-sloping orange line. - **AD_{\text{2027}}**: Downward-sloping blue line for the year 2027. - **AD_{\text{A}}**: Downward-sloping lighter blue line representing the first potential outcome for 2028. - **AD_{\text{B}}**: Downward-sloping darkest blue line representing the second potential outcome for 2028.- **Intersection Points**: - **Point A**: Where AS and $AD_{\text{A}}$ intersect. - **Point B**: Where AS and $AD_{\text{B}}$ intersect.These intersections indicate possible economic equilibria, showing the expected price level and output for each scenario in 2028. **Educational Content Transcription**---**CENGAGE | MINDTAP***Homework (Ch 22)*Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would expect _____ to be associated with the higher unemployment rate (6%).If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between 2027 and 2028 is _____.Based on your answers to the previous questions, on the following graph use the purple point (diamond symbol) to plot the unemployment rate and inflation rate if the economy is at point A. Next, use the green point (triangle symbol) to plot the unemployment rate and inflation rate if the economy is at point B. (As you place these points, dashed grey lines will automatically extend to both axes.) Finally, use the black line (cross symbol) to draw the short-run Phillips curve for this economy in 2028.*Note:* For graphing purposes, round the inflation rate under each outcome to the nearest whole percent. For example, round 1.9% to 2.0%.*Hint:* Hover your cursor over each point after you plot it to make sure you have placed it on the exact coordinate you intend.**Graph Description:**- The graph includes a vertical axis labeled "Inflation Rate" and a horizontal axis labeled "Unemployment Rate."- Points are plotted for "Outcome A" and "Outcome B" to determine the relationship between unemployment and inflation rates.- The graph also features a plotted short-run Phillips curve illustrating these economic relationships.--- This content appears as part of an interactive educational tool designed to help students understand economic concepts such as inflation, unemployment, and the Phillips curve.

Aggregate Demand is defined as the total amount of goods and services produced in an economy Aggregate Supply is defined as the total amount of goods and services the firms produce and sell in an economy. Unemployment rate and level of output have an inverse relationship. As the level of output increases, the unemployment rate falls and vice versa. Aggregate demand shows the total demand for goods and services in an economy during a period of time.Given, The current price level is 102. Since with ADB curve the country will produce higher level of output, and the unemployment rate will remain lower. On the contrary with ADA curve the country will produce lower level of output, and the unemployment rate will be comparatively higher. Thus based on the graph one would expect ADB curve to be associated with the lower unemployment rate (i.e 3%).Inflation rate can be calculated as : Target year price (T) = 104 Inflation base year prices (B) = 102 Rate of inflation = (T−B)/B×100 Rate of inflation = (104−102)/102×100 Rate of inflation = 1.96% If Aggregate demand is low in 2028 and the economy is at outcome A (where the output is less than at outcome B) The inflation rate between 2027 and 2028 is 1.96%.When there is a change in the aggregate demand then there will be a movement along the Philips curve. If the AD curve shifts to the right side then there will be an upward movement along a Philips curve. In the given graph When Ad curve shifts from the ADA to ADB Then there will be an increase in the price level and an increase in the output. Since output is increasing so unemployment is decreasing. Therefore, Suppose that the government is considering enacting an expansionary policy in 2027 that would shift aggregate demand in 2028 from ADA to ADB. This would cause a upward movement along the short-run Phillips curve, resulting in an Increase in the price level and a decrease in unemployment.

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In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves AD 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 ADS, resulting in the outcome given by point B.

In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves AD 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 ADS, resulting in the outcome given by point B.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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