THE PHILLIPS CURVE IN THE SHORT RUN AND LONG RUN ECONOMICS ANSWER...
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Course
ECONOMICS 201
Institution
Kennedy King College
The Phillips curve in the short run and long run
In the year 2020, aggregate demand and aggregate supply in the fictional country of Marjan are represented by the curves and AS on the following graph. Suppose the natural rate of output in this economy is $6 trillion. On the following graph, use...
the phillips curve in the short run and long run economics answer
the phillips curve in the short run and long run in the year 2020
aggregate demand and aggregate supply in the fictional country of m
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Kennedy King College
ECONOMICS 201
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2. The Phillips curve in the short run and long run
In the year 2020, aggregate demand and aggregate supply in the fictional country of Marjan
are represented by the curves and AS on the following graph.
Suppose the natural rate of output in this economy is $6 trillion
Analysis
The long-run aggregate supply curve, which is normally abbreviated as LRAS
graphically capture the supply-side of the aggregate market.
The vertical long-run aggregate supply curve normally captures the independent
relationship between the real production and the price level that may exists in the long
run.
The long-run aggregate supply curve demonstrates the lack of a cause and effect
relationship between the real production and the price levels. As the price level
increase,the full real production of the economy remains constant at the full-employment
level and vice versa.
This is illustrated below by the vertical line cutting the X- axis at 6 million
, On the following graph, use the green line (triangle symbol) to plot the long-run aggregate
supply (LRAS) curve for this economy.
Economists have forecast that if the government does nothing and the economy continues to
grow at the current rate, aggregate demand in 2021 will be given by the ADA curve,
resulting in the outcome illustrated by point A. If the government pursues an expansionary
policy, aggregate demand in 2021 will be given by the ADB curve, resulting in the outcome
illustrated by point B.
The following table gives projections for the unemployment rates that would occur at point A
and point B. Consider what the rate of inflation would be between 2020 and 2021, 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.
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