Your senators claim that lowering prices would be good for everyone—“Who doesn’t like lower prices, after all?” They tell you they plan to lobby for deflation. Falling prices could lead to a bad situation because:

1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaginary country of Aso-Kuju are represented by the curves AD2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADB, resulting in the outcome given by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 AD 2027 2 4 B AS ADB ADA 8 10 6 OUTPUT (Trillions of dollars) 12 14 16 (?) Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect outcome B▼ to be associated with the lower unemployment rate (5%). If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between 2027 and 2028…

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

Suppose the people of Canada has reduced their spending on goods and services from the United States.   What will be the effect on real GDP and the price level in the short run? In the long run? Show your results graphically.

Demand–pull inflation occurs when  increases until equilibrium output exceeds the full employment level.

Which is the correct order once the AD or SRAS has shifted to start the inflation process? a. Prices increase in the shortage markets. b. Shortages develop in some markets. c. Prices throughout the economy rise. 

There is a decrease in wealth what will happen to price level and real GDP

Explain each of the following in terms of how changes in the price level and the effect on Aggregate Quantity Demanded: The Real Balances Effect (in your text this is referred to as the Wealth Effect) The Interest Rate effect The Foreign Purchases effect (in your text this is referred to as the Foreign Prices effect)

The graph depicts a hypothetical economy's short-run Philips curve (SRPC). Please shift the SRPC to reflect what happens when expected inflation decreases by 2 percentage points. After the shift in SRPC, what is the unemployment rate if the public expects no inflation in the economy? % Inflation rate (%) -1 -2 0 7 6 SRPC 5 4 3 2 -3 0 1 2 3 4 5 6 7 8 0 10

Starting from a zero rate of inflation, suppose some event decreases aggregate demand. Use flow diagrams and the labor market graph to explain what happens to wages and prices which results in the “wage-price spiral”. What happens to the rate of inflation?