Country A is experiencing a recessionary gap.

1. Draw a Phillips curve with both the short-run and long-run curves. Label correctly.
2. Show Country A's recession as point "X" on your Phillips curve diagram.
3. The government increases spending to close the recessionary gap. Show the effect of this on your Phillips curve diagram, labeling the new equilibrium point "Y."

Question 4:

1. Draw a correctly labeled macroeconomic equilibrium diagram. Label the equilibrium point on the diagram as point "S."
2. Beside your AD-AS curve, draw a correctly labeled Phillips curve. Label a point as point "S" on your SRPC where it intersects the LRPC.
3. The government imposes new regulations on firms. Show the effect of this on your AD-AS diagram.
4. Label the new intersection of AD and SRAS as point "T."
5. Show this change on your Phillips curve diagram, labeling it point "T."

Question 5:

Country B is at macroeconomic equilibrium.

1. Draw a Phillips curve with both the short-run and long-run curves. Label correctly.
2. Label the equilibrium point on the diagram as point "J."
3. The price of resources decreases. Show the effect of this on your Phillips curve, labeling the new equilibrium point as point "K."

Question 6:

Why is the long-run Phillips curve a vertical line?