1. The Global Insight (GI) forecasting firm predicted that the Canadian economy would bounce back by a stronger-than-expected 1.0 percent on an annualized basis in the third quarter of 2012 and with a further 0.1 percent in the fourth quarter of 2012. The firm also expected moderate growth overall in 2013.

a.What evidence did GI present to support the view that Canada had entered a recovery?

b.Use a short-run Phillips curve to explain why the inflation rate may have increased over the course of 2012.

c.Under what circumstances might the inflation ratenothave increased during 2012?