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Japan qu Canada (CAN) 0.8 slope = 41.1712 slope = -ol43'98 0,6 0.4 0.2 ~ T UNEMPLOYMENT GAP (56) O o UNEMPLOYMENT GAP (56) $55.5
Japan qu Canada (CAN) 0.8 slope = 41.1712 slope = -ol43'98 0,6 0.4 0.2 ~ T UNEMPLOYMENT GAP (56) O o UNEMPLOYMENT GAP (56) $55.5 & A a Source: IMF OUTPUT GAP (M Source: IMF OUTPUT GAP 1%) (a) (2 pts) What economic relationship (or law) is illustrated in the graphs? (b) (2 pts) Briey explain how the gaps indicated in these graphs are calculated. Support your explanation with the appropriate equation(s). (c) (4 pts) If (i) the central bank of Japan and the central bank of Canada both have the same mandate, (ii) both central banks use the optimalrate rule, and (iii) the sensitivity of ination to unemployment is the same in both countries, which country will recover more quickly from a businesscycle shock
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