Suppose the economy of Haydn is in equilibrium and experiencing a recessionary gap of $60 and inflation of 1 percent.

a) What are the price index, equilibrium GDP, potential GDP, and unemployment rate?

Price index:

Equilibrium GDP:

Potential GDP:

Unemployment rate:

b) In the following year, AD increases by 40. Complete the new demand column in Table 12.3.

c) What are the new unemployment and inflation rates?

Unemployment rate:

Inflation rate:

d) Sketch a Phillips curve from your answers to

(a) and

(b) in Figure 12.9.

TABLE 12.3 Price Index Aggregate Quantity Demanded Aggregate Quantity Demanded 2 Aggregate Quantity Supplied 110 860 740 115 840 760 120 820 780 125 800 800 130 780 820 135 760 840 140 740 860 Inflation rate (%