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The economy of Country X was hit hard by the Covid-19 pandemic. The crisis saw the unemployment rate increase from 5.7% in 2019 to 9.5%

  1. The economy of Country X was hit hard by the Covid-19 pandemic. The crisis saw the unemployment rate increase from 5.7% in 2019 to 9.5% in 2020. During the same period, the inflation rate decreased from 1.9% to 0.7%. Using appropriate graph(s), explain the following. (Total marks = 20)
  2. Did a trade-off exist between the unemployment rate and the inflation rate during 2019 and 2020? How can the Phillips curve be used to answer this question? (5 marks)
  3. 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? (5 marks)
  4. If the central bank of Country X implements 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.) (5 marks)
  5. Is there a trade-off between the unemployment rate and inflation rate in the long run? Explain how the long-run Phillips curve is related to the long-run aggregate supply curve. (5 marks)

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