Shift the graphs and answer questions, and no explanation needed.

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1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Gizmet are represented by the curves AD2023 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the AD]; curve, resulting in the outcome illustrated by point B. /'\\ K?) 108 107 - AS 106 B 4105 -+ L\" I > A "'" I I 104 + I Ll.| I o n: ADzoza I I [L 103 I I ADB I I 102 I I ADA I I I I 101 I I I I 100 -..iIl' il 1o 12 14 1s 0 2 4 6 8 OUTPUT (Trillions of dollars) Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would expect V to be associated with the higher unemployment rate (6%). If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 is Y . Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would expect V to be associated with the higher unemployment rate (6%). outcome A emand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 is V . Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would expect to be associated with the higher unemployment rate (6%). If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 is 2.94% Based on your answers to the previous questions, on the following graph use the purple point (diamond symbol) to employment rate and inflation rate if the economy is at point A. Next, use the green point (triangle symbol) to plot the unemployment rate 1.96% tion rate if the economy is at point B. (As you place these points, dashed drop lines will automatically extend to both axes. ) Finally, use the t 4.00% (cross symbol) to draw the short-run Phillips curve for this economy in 2024. 5.00%Based on your answers to the previous questions, on the following graph use the purple point (diamond symbol) to plot the unemployment rate and ination rate if the economy is at point A. Next, use the green point (triangle symbol) to plot the unemployment rate and inflation rate if the economy is at point B. (As you place these points, dashed drop lines will automatically extend to both axes.) Finally, use the black line (cross symbol) to draw the shortrun Phillips curveI for this economy in 2024. Note: For graphing pruposes, round the inflation rate under each outcome to the nearest whole percent. For example, round 1.9% to 2.0%. Hint: Hover your cursor over each point after you plot it to make sure you have placed it on the exact coordinate you intended. "'x a\"? : \\k 1/ 8 __ 7 _ OutcomeA 6 __ 2 A C a: 9 __ E 5 OutcomeB 9.4 4 |:}| (Z: I: 3 __ Phillips Curve 3 LL 2 _ 2 __ 1 __ 0 1iiIiIiIl 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent) Suppose that the government is considering enacting an expansionary policy in 2023 that would shift aggregate demand in 2024 from ADA to ADE. This would cause a V the shortrun Phillips curve, resulting in V in the inflation rate and Y in the unemployment rate. shift of movement along Suppose that the go ering enacting an expansionary policy in 2023 that would shift aggregate demand in 2024 from ADA to ADB. This would cause a the short-run Phillips curve, resulting in in the inflation rate and in the unemployment rate.a decrease an increase Suppose that the government is considering enacting an expansionary policy in 202 hift aggregate demand in 2024 from ADA to ADB. This would cause a the short-run Phillips curve, resulting in in the inflation rate and in the unemployment rate.a decrease an increase Suppose that the government is considering enacting an expansionary policy in 2023 that would shift aggregate demand in 20 This would cause a v the short-run Phillips curve, resulting in v in the inflation rate and unemployment rate. 2. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2023 and AS on the following graph. Suppose the natural level of output in this economy is $7 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 108 A 107 LRAS AS 106 A 105 Outcome C 104 PRICE LEVEL AD 2023 103 ADA 102 ADB 101 100 0 2 4 6 8 10 12 14 16 OUTPUT (Trillions of dollars)Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2024 will be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues a contractionary policy, aggregate demand in 2024 will be given by the ADB curve, resulting in the outcome illustrated by point B. The following table gives projections for the unemployment rates that would occur at point A and point B. Consider what the rate of inflation would be between 2023 and 2024, depending on whether the economy moves from the initial price level of 102 to the price level at outcome B or the price level at outcome A. Complete the table by entering the ination rate at each potential outcome point. Note: Calculate the inflation rate to two decimal points of precision. Unemployment Rate Inflation Rate A 3% : Based on your answers to the preceding parts, use the black line (plus symbol) to draw the short-run Phillips curve (SRPC) for this economy in 2024. (Note: You will not be graded on any changes you make to this graph. ) + SRPC 6 A 5 LRPC INFLATION RATE (Percent) 3 2 0 1 2 3 4 5 6 7 8 UNEMPLOYMENT RATE (Percent)The shortrun Phillips curve is V line: O Representing the tradeoff between unemployment and inflation O At the natural level of output 0 At the natural rate of unemployment Now consider the longrun effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADE. Designate the longrun equilibrium that would follow such a policy as outcome C. Going back to the rst graph, place the grey point (star symbol) at outcome C. Because output at point C is V the natural level of output, the unemployment rate associated with outcome C is V the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the longrun Phillips curve (LRPC) on the second graph. This line is V line: 0 At the natural rate of unemployment 0 At the natural level of output 0 Representing the tradeoff between unemployment and inflation The shortrun Phillips curve is V line: O Representing the tr. a vertical .yment and inflation 0 At the natural level i a downwardsloping 0 At the natural rate - an Upwardsloping Now consider the longrun effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADE. Designate the longrun equilibrium that would follow such a policy as outcome C. Going back to the rst graph, place the grey point (star symbol) at outcome C. Because output at point C is V the natural level of output, the unemployment rate associated with outcome C is V the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the longrun Phillips curve (LRPC) on the second graph. This line is V line: 0 At the natural rate of unemployment 0 At the natural level of output 0 Representing the tradeoff between unemployment and inflation The shortrun Phillips curve is V line: 0 Representing the tradeoff between unemployment and inflation 0 At the natural level of output 0 At the natural rate of unemployment Now consider the longrun effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADE. Designate the longrun equilibrium that would follow such a policy as outcome C. Going back to the rst graph, place the grey point (star symbol) at outcome C. Because output at point C is V the natural level of output, the unemployment rate associated with outcome C is V the natu ployment. greater than less than Finally, use the green line (if to draw the longrun Phillips curve (LRPC) on the second graph. e ual to This line is q 0 At the natural rate of unemployment 0 At the natural level of output 0 Representing the tradeoff between unemployment and inflation The shortrun Phillips curve is V line: 0 Representing the tradeoff between unemployment and inflation 0 At the natural level of output 0 At the natural rate of unemployment Now consider the longrun effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADE. Designate the longrun equilibrium that would follow such a policy as outcome C. Going back to the rst graph, place the grey point (star symbol) at outcome C. Because output at point C is V the natural level of output, the unemployment rate associated with outcome C is the natural rate of unemployment. less than reen line (triangle symbol) to draw the longrun Phillips curve (LRPC) on the second graph. equal to V line: greater than 0 At the natural rate of unemployment 0 At the natural level of output 0 Representing the tradeoff between unemployment and inflation The shortrun Phillips curve is V line: 0 Representing the tradeoff between unemployment and inflation 0 At the natural level of output 0 At the natural rate of unemployment Now consider the longrun effects of this policy. Suppose, in particular, that following implementation of the policy, the aggregate demand curve remains at ADE. Designate the longrun equilibrium that would follow such a policy as outcome C. Going back to the rst graph, place the grey point (star symbol) at outcome C. Because output at point C is V the natural level of output, the unemployment rate associated with outcome C is V the natural rate of unemployment. Finally, use the green line (triangle symbol) to draw the long-run Phillips curve (LRPC) on the second graph. This line is V line: C) an upward-sloping employment 0 a vertical tput O I a downwardsloping ff between unemployment and inflation 3. The long-run effects of monetary policy The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). LRAS O AD O LRAS PRICE LEVEL AD 2 6 8 10 12 OUTPUT (Trillions of dollars)LRPC O SRPC n E LRPC Z 9 I E Z SRPC 0 3 6 9 12 15 1B UNEMPLOYMENT RATE (Percent) Which of the following statements are true based on these graphs? Check all that apply. [3 The natural level of output is $6 trillion. D The current quantity of output is greater than potential output. [3 The unemployment rate is currently 9% higher than the natural rate of unemployment. Suppose the central bank of the economy increases the money supply. Show the longrun effects of this policy on both of the graphs by shifting the appropriate curves. The longrun effect of the central bank's policy is V in the inflation rate, v in the unemployment rate, and V in real GDP. Suppose the central bank of the economy increas no change .upply. an increase Show the long-run effects of this policy on both 0 shifting the appropriate curves. a decrease The long-run effect of the central bank's policy is v in the inflation rate, v in the unemployment rate, and V in real GDP. Suppose the central bank of the economy increases the money supply. no change an increase Show the long-run effects of this policy on both of the graphs by shifting the appropriat a decrease The long-run effect of the central bank's policy is v in the inflation rate, v in the unemployment rate, and V in real GDP. Suppose the central bank of the economy increases the money supply. an increase a decrease run effects of this policy on both of the graphs by shifting the appropriate curves. no change ffect of the central bank's policy is in the inflation rate, in the unemployment rate, and in real GDP