Here are hypothetical inflation and unemployment data for

Econoland.

Time Period Inflation Rate (%) Unemployment Rate (%)

1 0 6

2 3 4

Time Period Inflation Rate (%) Unemployment Rate (%)

3 7 3

4 8 5

5 7 7

6 3 6

a. Plot these points.

b. Identify which points correspond to a Phillips phase, which

correspond to a stagflation phase, and which correspond to a

recovery phase.

3. Relate the observations in Numerical Problem 2 to what must have been

happening in the aggregate demand-aggregate supply model.

4. Suppose the full-employment level of real GDP is increasing at a rate of

3% per period and the money supply is growing at a 4% rate. What will

happen to the long-run inflation rate, assuming constant velocity?