1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaglnary country of Patagonia are represented by the curves ADevaz and A A on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The frirt possible aggregate demand curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possibie aggregate demand curve is given by the airve labeled AD9, resulting in the outcome given by point B. 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%). If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between 2027 and 2028 is Based on your answers to the previous guestions; on the following gragh use the purple point (diamand symbol) to pot the unemployment rafe and infabion rate if the economy is at point A. Next, use the green point (triangle symbol) to plot the unemployment rate and infation rate if the economy is at point B. (As you piace these points, dashed dro lines will automaticaily extend to both ares.) firlaily, use the black Uhe (oross aymbof) fo draw the short-run Phinics curve for this economy in 2028 Note: For graphing pruposes, round the inflation rate under each outcome to the nearest whole percent. For examplo, round 1.9\%6 to 2.0% Suppote that the government is censidering enocting an expansionary poilcy in 2027 that would shint aggregate demand in 2023 frum Alo. to A Dy. This would cause a the short-run Phillips curve, resulting in in the inhaton rate and unemployment rate. 5uppose 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 assoclated with the lower unemployment rate (5%5). emand is low in 2028, and the economy is at outcome A,, the infation rate between 2027 and 2028 is 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%4). If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between 2027 and 2028 is Based on your answers to the previous questions, on the following graph use the purple point (diamand symbol) to lermployment rate and infiation rate if the economy is at point A. Next, yse the green point (triangle symbol) to plot the unemployment rat tion rate if the economy is at point B. (As you place these points, dashed drop lines wiil automatically extend to both axes.) finalyy; ase the i cross symes bou to draw the short-run Phillips curve for this economy in 2028. Note: For graphing pruposes, round the infiation rate under each outcome to the nearest whole percent. For example, ruarib x.9% to 2.046. Suppose that the c Iring enacting an expanslonary policy in 2027 that would shift aggregste demand in 2028 from ADA to ADm. This would cause a the short-run Phililips curve, resulting in in the inflation rate and in the unemployinent rote. UNEMPLO NMENT RATE (Percent) Suppose that the government is considering enacting an expansionary policy in 20 : if aggregate demand in 2028 from ADA to ADA. This would cause a the short-fun phillipt curve, resuiting in in the inflation rate and in the unemployment rate. Suppose that the govermment is considering enacting an expansionary policy in 2027 that would shift aggregate demand in 24 2ADn This would chuse a the shorterun philigs curve, resulting in. unemployment rate
