Aa Aa 6. Aggregate demand, aggregate supply, and the Phillips curve Suppose that

Question

Aa Aa 6. Aggregate demand, aggregate supply, and the Phillips curve Suppose that in the year 2020, the aggregate price level is 100. The following graph shows two possible outcomes for 2021. The first aggregate demand curve is given by the AD1 curve, resulting in the outcome illustrated by point A The second aggregate demand curve is given by the AD2 curve, resulting in the outcome illustrated by point B AGGREGATE PRICE LEVEL 108 107 106 105 SRAS 104- 103-XA 102 101 100 AD AD 0 2 46 8 10 12 14 16 REAL GDP (Trillions of dollarsl 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 to be associated with the lower unemployment rate (5%), and to be associated with the higher unemployment rate (7%) outcome B outcome A If aggregate demand is low in 2021, and the economy is at outcome A, the inflation rate between 2020 and 2021 is

Explanation / Answer

outcome B
outcome A
movement along
an increase
a decrease

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