Attempts: Average: 14 1. Aggregate demand, aggregate supply, and the Phillips cu

Question

Attempts: Average: 14 1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2020, aggregate demand and aggregate supply in the fictional country of Gizmet 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 ADs curve, resulting in the outcome illustrated by point B. 108 T 107 AS 106 t B. 05 04- 103 t AD 102 t AD 101 100 10 12 1416 OUTPUT (Trillions of dollars)

Explanation / Answer

1. I would expect the outcome B to be associated with a lower unemployment rate (5%)

2.Inflation rate between 2020 and 2021 is 1.96%

Inflation is a measure of price rise so ((105-104) /(104) ) * 100 which is 0.96%.So if it's value is 1 initially it will be 1.96 now.

3.movement along the short-run phillips curve

4.Increase in inflation rate - As aggregate demand increases,the prices also increases.

5.Decrease in unemployment rate - As aggregate demand increases,the production will haveto increase which requires more people to be hired which leads to decrease in unemployment rate.

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