Lower unemployment rate, Use the black line (cross symbol)

Lower unemployment rate

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Reference no: EM133390480

Aggregate demand, aggregate supply, and the Phillips curve

In the year 2027, aggregate demand and aggregate supply in the imaginary country of Aso-Kuju are represented by the curves AD2027AD2027 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 ADAADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADBADB, resulting in the outcome given by point B.

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 (OUTCOME A or OUTCOME B) to be associated with the lower unemployment rate (3%).

If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between 2027 and 2028 is (4.00% or 1.96% or 2.94% or 5.00%) .

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 drop 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.

Suppose that the government is considering enacting an expansionary policy in 2027 that would shift aggregate demand in 2028 from ADAADA to ADBADB. This would cause a (MOVEMENT ALONG or SHIFT OF the short-run Phillips curve, resulting in (A DECREASE or AN INCREASE) in the inflation rate and (A DECREASE or AN INCREASE) in the unemployment rate.

Reference no: EM133390480

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