Suppose the US and the Canadian economy are hit with higher expectations of inflation.

a. Use a graph to explain the effect of this shock in the short-run on Real GDP, inflation and unemployment for each economy. (It would be best to draw separate diagrams for each country.)

b. After some time it is observed that in United States inflation rises more and output increases but in Canada it transpires that inflation falls and output increases. What type of stabilization approach did each country have?