2. The economy of a hypothetical country has been stable for two or three years with very low unemployment. Wages have been gradually increasing during this time. Now an aggressive policy of increasing tariffs on foreign goods imported into the country results retaliatory actions from the other countries against the country's products and services. This causes great loss of business in the country and results in significant portion of workers losing their jobs.

Given this scenario, insert your answers below each of the following questions.

a. What kind of economic gap will start to occur (inflationary or recessionary)?

b. Which of these graphs, Figure 1 or Figure 2, depicts this economic gap?

Figure 1