Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs. The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices. Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand. AD Price level LRAS SRAS

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of
higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much
greater than expected, and the pesky inflation increase never occurs.
The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to
illustrate changes in the economy that could result in lower unemployment without an increase in prices.
Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents
aggregate demand.
AD
Price level
LRAS
SRAS
Transcribed Image Text:Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs. The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices. Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand. AD Price level LRAS SRAS
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