In the year 2020, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD2020 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2021. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. PRICE LEVEL 108 107 B 106 105 104 103 AD 2020 102 101 100 0 2 4 6 8 A 10 OUTPUT (Trillions of dollars) AS AD A ADB 12 14 16 ? Suppose the unemployment rate is 5% under one of these two outcomes and 2% under the other. Based on the previous graph, you would expect to be associated with the higher unemployment rate (5%). If aggregate demand is low in 2021, and the economy is at outcome A, the inflation rate between 2020 and 2021 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 drop lines will automatically extend to both axes.) Finally, use the black line (plus symbol) to draw the short-run Phillips curve for this economy in 2021. 8 7 6 INFLATION RATE (Percent) 5 + ♡ 2 1 0 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent) Outcome A Outcome B ? Phillips Curve Suppose that the government is considering enacting an expansionary policy in 2020 that would shift aggregate demand in 2021 from ADA to ADB. This would cause a the short-run Phillips curve, resulting in in the inflation rate and in the unemployment rate.
In the year 2020, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD2020 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2021. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. PRICE LEVEL 108 107 B 106 105 104 103 AD 2020 102 101 100 0 2 4 6 8 A 10 OUTPUT (Trillions of dollars) AS AD A ADB 12 14 16 ? Suppose the unemployment rate is 5% under one of these two outcomes and 2% under the other. Based on the previous graph, you would expect to be associated with the higher unemployment rate (5%). If aggregate demand is low in 2021, and the economy is at outcome A, the inflation rate between 2020 and 2021 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 drop lines will automatically extend to both axes.) Finally, use the black line (plus symbol) to draw the short-run Phillips curve for this economy in 2021. 8 7 6 INFLATION RATE (Percent) 5 + ♡ 2 1 0 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent) Outcome A Outcome B ? Phillips Curve Suppose that the government is considering enacting an expansionary policy in 2020 that would shift aggregate demand in 2021 from ADA to ADB. This would cause a the short-run Phillips curve, resulting in in the inflation rate and in the unemployment rate.
Chapter10: Kenesian Macroeconomics And Economic Instability: A Critique Of The Self Regulating Economy
Section: Chapter Questions
Problem 3WNG
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