A worldwide drought has reduced food production. Inflation has increased, unemployment has risen above the natural rate, Pakistani’s are frustrated with their government. Your roommate says, "This economic mess has got to be somebody's fault—probably the Prime Minister or National Assembly. A year ago, both inflation and unemployment were lower. We need to vote in some policymakers that know how to get rid of this inflation and unemployment." a. If policymakers increase aggregate demand in response to the supply shock, in what direction will the economy move along the new short-run Phillips curve? What will happen to inflation and unemployment? b. Is there a policy that can immediately reduce both inflation and unemployment? Explain.

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Unemployment and Cost of Unemployment

Unemployment is the state of being unemployed, even when an individual is actively seeking work opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed.