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In April 2020, the economy lost about 2 million jobs amid the Covid-19 crisis. According to Statistics, the unemployment rate soared to 13%, up from
- In April 2020, the economy lost about 2 million jobs amid the Covid-19 crisis. According to Statistics, the unemployment rate soared to 13%, up from the 7.8% recorded in March of 2020. Around the same period, inflation rate dropped from 2.2% in February to 0.9% in March and -0.2% in April. Use appropriate graph(s) to explain the following.
- Was there a trade-off between the unemployment rate and the inflation rate between the months of March and April 2020? How can the Phillips curve be used to answer this question?
- If the unemployment rate and inflation are both rising, can this be explained by a movement along a given Phillips curve? What must be happening to aggregate demand and aggregate supply? What must be happening to the Phillips curve?
- If the Bank continues to undertake expansionary monetary policy, how will the unemployment rate and inflation be affected? (Use both Phillips curve and aggregate supply - aggregate demand graphs in your explanation.)
- Is there a trade-off between the unemployment rate and inflation in the long run? How is the long run aggregate supply curve related to the long run Phillips curve?
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