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Phillip's Curve
For each of the following draw an AD/AS diagram and a corresponding Phillip's curve assuming the following: (1) suppliers produce more goods and services when price increases; (2) actual GDP is 21,000; (3) full employment GDP is 20,000; (4) the natural rate of unemployment is 4.5%.
a) Show in both diagrams the effect of an increase in taxes that brings actual GDP to full employment.
b) Again assume actual GDP is at 21,000, show in both diagrams the effect of the Federal Reserve Bank buying treasury bonds from banks.
c) Again assume actual GDP is at 21,000, in both diagrams show what will happen in the long run if the government does nothing but prices adjust.
When quantity moves proportionately to the same amount as price, demand is:
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