1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD202and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. 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. AS 104 ADeas AD AD. s01 100 10 12 16 OUTPUT (Trillions of dollars) 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 unemployment rate (5%). * to be associated with the higher If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 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 (cross symbol) to draw the short-run Phillips curve for this economy in 2024. Note: For graphing pruposes, round the inflation rate under each outcome to the nearest whole percent. For example, round 1.9% to 2.0%. Hint: Hover your cursor over each point after you plot it to make sure you have placed it on the exact coordinate you intended. Outcome A Outcome B Philips Curve UNEMPLOYMENT RATE (Percent) Suppose that the government is considering enacting an expansionary policy in 2023 that would shift aggregate demand in 2024 from ADA to ADB This would cause a Phillips curve, resulting in the short-run * in the inflation rate and in the unemployment rate.
1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD202and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. 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. AS 104 ADeas AD AD. s01 100 10 12 16 OUTPUT (Trillions of dollars) 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 unemployment rate (5%). * to be associated with the higher If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 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 (cross symbol) to draw the short-run Phillips curve for this economy in 2024. Note: For graphing pruposes, round the inflation rate under each outcome to the nearest whole percent. For example, round 1.9% to 2.0%. Hint: Hover your cursor over each point after you plot it to make sure you have placed it on the exact coordinate you intended. Outcome A Outcome B Philips Curve UNEMPLOYMENT RATE (Percent) Suppose that the government is considering enacting an expansionary policy in 2023 that would shift aggregate demand in 2024 from ADA to ADB This would cause a Phillips curve, resulting in the short-run * in the inflation rate and in the unemployment rate.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Aggregate demand, aggregate supply, and the Phillips curve
In the year 2023, aggregate demand and aggregate supply in the fictional country of Drooble are
represented by the curves AD202and AS on the following graph. The price level is 102. The graph
also shows two possible outcomes for 2024. 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.
AS
104
ADeas
AD
AD.
s01
100
10
12
16
OUTPUT (Trillions of dollars)
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
unemployment rate (5%).
* to be associated with the higher
If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between
2023 and 2024 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 (cross symbol) to draw the short-run Phillips curve for this
economy in 2024.
Note: For graphing pruposes, round the inflation rate under each outcome to the nearest whole
percent. For example, round 1.9% to 2.0%.
Hint: Hover your cursor over each point after you plot it to make sure you have placed it on the
exact coordinate you intended.
Outcome A
Outcome B
Philips Curve
UNEMPLOYMENT RATE (Percent)
Suppose that the government is considering enacting an expansionary policy in 2023 that would
shift aggregate demand in 2024 from ADA to ADB This would cause a
Phillips curve, resulting in
the short-run
* in the inflation rate and
in the unemployment
rate.
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