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

In the year 2027, aggregate demand and aggregate supply in the imaginary country of Aso-Kuju are represented by the curves AD2027AD2027and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADAADAcurve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADBADB, resulting in the outcome given by point B.

108 107 AS 106 105 104 PRICE LEVEL AD2027 103 ADB 102 ADA 100 2 6 8 10 12 14 OUTPUT (Trillions of dollars)\fSuppose that the government is considering enacting an expansionary policy in 2027 that would shift aggregate demand in 2028 from AD, to AD;. This would cause a the short-run Phillips curve, resulting in in the inflation rate and in the unemployment rate