ECON 214 HW22 InflationUnemploymen Liberty University t Trade Assignmenoff t
updated answers
1. Aggregate demand, aggregate supply, and the Phillips curve
In the year 2027, aggregate demand and aggregate supply in the imaginary country of Patagonia
are represented by the curves AD2027 and AS on the following graph. The price level isAD2027
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 byADA
point A. The second possible aggregate demand curve is given by the curve labeled ADBADB,
resulting in the outcome given by point B.
Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other.
Based on the previous graph, you would expect to be associated with the higher
unemployment rate (6%).
If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between
2027 and 2028 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 2028.
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.
Suppose that the government is considering enacting an expansionary policy in 2027 that would
shift aggregate demand in 2028 from ADA to ADB. This would cause a the short-ADAADB
run Phillips curve, resulting in in the inflation rate and in the unemployment rate.
In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki
are represented by the curves AD2027 and AS on the following graph. The price level is AD2027
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 ADA
point A. The second possible aggregate demand curve is given by the curve labeled ADBADB,
resulting in the outcome given by point B.
Suppose the unemployment rate is 5% under one of these two outcomes and 3% under the other.
Based on the previous graph, you would expect to be associated with the lower
unemployment rate (3%).
If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between
2027 and 2028 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.
