6. Aggregate demand, aggregate supply, and the Phillips curve

In the year 2023, aggregate demand and aggregate supply in the fictional country of Gizmet are represented by the curves AD2023

and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. The first potential aggregate demand curve is given by the ADAcurve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADBcurve, resulting in the outcome illustrated by point B.

\fO 7 _ Outcome A 6 _ 9 A i; 5 5 " o t E; u come B e g 4 + z E 3 __ Phillips Curve LL Z 0 l | | l l | | l 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent) Suppose that the government is considering enacting an expansionary policy in 2023 that would shift aggregate demand in 2024 from ADA to ADB. This would cause a V the shortrun Phillips curve, resulting in V in the ination rate and V in the unemployment rate