Phillips curve

l unemployment rate l inflation rate

2004 l 2% l 8%

2005 l 5% l 4%

Assume the table shows the unemployment and inflation data for Argentina

A) Draw a correctly labeled graph of the short run Phillips curve for Argentina, showing the unemployment and inflation rates for both years.

B) Now, assume that the natural rate of unemployment for Argentina is 5%. Add a LRPC to your graph.

C) What is the relationship between unemployment and inflation in the long run?

D) Was the change in the economy from 2004 to 2005 a good one? How do you know?