2. The Phillips curve in the short run and long run In the year 2025, aggregate demand and aggregate supply in the fictional country of Marjan are represented by the curves AD2025 and AS on the following graph. Suppose potential GDP 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. (?) 108 A 107 LRAS AS 106 10 Outcome C 104 PRICE LEVEL AD 202 10 ADE 102 ADA 101 100 2 8 10 12 14 16 OUTPUT (Trillions of dollars) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2026 will Activate Windows be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues an expansionary policy, aggregate demand in Go to Settings to activate Windo 2026 will be given by the ADB curve, resulting in the outcome illustrated by point B.Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2026 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 2026 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 2025 and 2026, 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. Unemployment Rate Inflation Rate A 6% CO 3% Use the following graph to help you answer the questions that follow. (Note: You will not be graded for any adjustments made to this graph.) (? -+ SRPC2026 A 5 LRPC RATE (Percent) Activate Windows Go to Settings to activate Windows.(? +- SRPC 2028 A LRPC INFLATION RATE (Percent) w N 3 5 7 UNEMPLOYMENT RATE (Percent) Based upon the unemployment and inflation rates you calculated previously for outcomes A and B, use the black line (plus symbol) to draw the short- run Phillips curve for this economy in 2026 (SRPC2026). The short-run Phillips curve is line: O At potential GDP O At the natural rate of unemployment Activate Windows Go to Settings to activate Window O Representing the trade-off between unemployment and inflationBased upon the unemployment and inflation rates you calculated previously for outcomes A and B, use the black line (plus symbol) to draw the short- run Phillips curve for this economy in 2026 (SRPC2026). The short-run Phillips curve is line: O At potential GDP O At the natural rate of unemployment O Representing the trade-off between unemployment and inflation Now consider the long-run effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADB. Designate the long-run equilibrium that would follow such a policy as outcome C. Going back to the first graph, place the grey point (star symbol) at outcome C. Because output at point C is potential GDP, the unemployment rate associated with outcome C is 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 line: O Representing the trade-off between unemployment and inflation O At the natural rate of unemployment At potential GDP