Suppliers produce more goods-services when price increases

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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 9,200; (3) full employment GDP is 10,000; (4) the natural rate of unemployment is 5.5%.

a) Show in both diagrams the effect of an increase in government purchases that pushes actual GDP up to full employment.

b) Again assume actual GDP is at 9,200, show in both diagrams the effect of the Federal Reserve Bank selling treasury bonds to banks.

c) Again assume actual GDP is at 9,200, in both diagrams show the long run effect if the government does nothing.

Reference no: EM131378556

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