Suppose the economy has been experiencing zero inflation and five percent unempl

Question

Suppose the economy has been experiencing zero inflation and five percent unemployment for several years. The government decides to lower the unemployment percentage by generating some inflation. You need to do the following: Using the Grapher tool, create a graph showing what the short-run effects would be and what would happen in the long run. To save the graph, press the Alt+PrintScrn keys simultaneously. Open a Word document and insert the image by pressing the Ctrl+V keys simultaneously. Give reasons to explain what the government would have to do to keep the unemployment rate at 3 percent

Explanation / Answer

We don't see the graph here, but the key idea behind the Phillps Curve is that there is a trade-off between unemployment and inflation. So, if the government wants to keep the unemployment rate at 3%, it will have to tolerate a certain amount of inflation, perhaps 2%.

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