The following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the price level at outcome A or the price level at outcome B. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision Based on your answers to the preceding parts, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2028. (Note: You will not be graded on any changes you make to this graph.) The short-run Phillips curve is (an upward-sloping/a downward sloping/a vertical) line: -Representing the tradeoff between unemployment and inflation -At the natural rate of unemployment -At the natural level of output Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADBADB. The long-run equilibrium that would follow such a policy is designated outcome C. Going back to the first graph, place the grey point (star symbol) at outcome C. Because output at point C is (less than/greater than/equal to) the natural level of output, the unemployment rate associated with outcome C is (greater than/less than/ equal to) the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the long-run Phillips curve (LRPC) on the second graph. This line is (a downward sloping/ an upward sloping/ a vertical) line: -Representing the tradeoff between unemployment and inflation -At the natural rate of unemployment -At the natural level of output

The following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the price level at outcome A or the price level at outcome B. Complete the table by entering the inflation rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision Based on your answers to the preceding parts, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2028. (Note: You will not be graded on any changes you make to this graph.) The short-run Phillips curve is (an upward-sloping/a downward sloping/a vertical) line: -Representing the tradeoff between unemployment and inflation -At the natural rate of unemployment -At the natural level of output Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADBADB. The long-run equilibrium that would follow such a policy is designated outcome C. Going back to the first graph, place the grey point (star symbol) at outcome C. Because output at point C is (less than/greater than/equal to) the natural level of output, the unemployment rate associated with outcome C is (greater than/less than/ equal to) the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the long-run Phillips curve (LRPC) on the second graph. This line is (a downward sloping/ an upward sloping/ a vertical) line: -Representing the tradeoff between unemployment and inflation -At the natural rate of unemployment -At the natural level of output

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 1WNG

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The following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027.

Suppose the natural level of output in this economy is $6 trillion.

On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy.

Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B.

The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the price level at outcome A or the price level at outcome B.

Complete the table by entering the inflation rate at each potential outcome point.

Note: Calculate the inflation rate to two decimal points of precision

Based on your answers to the preceding parts, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2028. (Note: You will not be graded on any changes you make to this graph.)

The short-run Phillips curve is (an upward-sloping/a downward sloping/a vertical) line:

-Representing the tradeoff between unemployment and inflation

-At the natural rate of unemployment

-At the natural level of output

Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADBADB. The long-run equilibrium that would follow such a policy is designated outcome C.

Going back to the first graph, place the grey point (star symbol) at outcome C.

Because output at point C is (less than/greater than/equal to) the natural level of output, the unemployment rate associated with outcome C is (greater than/less than/ equal to) the natural rate of unemployment.

Finally, use the green line (triangle symbol) to draw the long-run Phillips curve (LRPC) on the second graph.

This line is (a downward sloping/ an upward sloping/ a vertical) line:

-Representing the tradeoff between unemployment and inflation

-At the natural rate of unemployment

-At the natural level of output

On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy.
PRICE LEVEL
108
107
106
105
104
103
102
101
100
0
|
AD 2027
2
4
ACIL
B
AS
AD
ADB
A
6
8
10
OUTPUT (Trillions of dollars)
12
14
16
LRAS
Outcome C

Note: Calculate the inflation rate to two decimal points of precision.
Unemployment Rate Inflation Rate
A
B
INFLATION RATE (Percent)
8
Based on your answers to the preceding parts, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2028.
(Note: You will not be graded on any changes you make to this graph.)
7
6
LO
A
2
1
0
6%
3%
0
1
%
2
%
4
3
5
6
UNEMPLOYMENT RATE (Percent)
7
8
SRPC
LRPC
(?)

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