Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 5%, and potential output is $40 trillion. Use the orange points (square symbols) to draw the aggregate supply curve in this case, and use the black point (X symbol) to mark the equilibrium price level and real GDP. PRICE LEVEL 180 160 140 120 100 80 0 20 40 60 REAL GDP (Trillions of Dollars) 80 AD 100 Aggregate Supply Equilibrium ? On the following graph, use the purple points (diamond symbols) to draw the short-run Phillips curve for this economy when inflation is perfectly

Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 5%, and potential output is $40 trillion. Use the orange points (square symbols) to draw the aggregate supply curve in this case, and use the black point (X symbol) to mark the equilibrium price level and real GDP. PRICE LEVEL 180 160 140 120 100 80 0 20 40 60 REAL GDP (Trillions of Dollars) 80 AD 100 Aggregate Supply Equilibrium ? On the following graph, use the purple points (diamond symbols) to draw the short-run Phillips curve for this economy when inflation is perfectly

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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