The graph represents a shortrun Phillips curve (SRPC). Label the axes using the given terms. 7 Answer Bank 6 5 ' 4 ................................ 3 _ Unemployment rate a ................................. a 2 _. - gm 1 12345678101112 1 *2 Suppose wages in Ruritania rose 2.50% last year, while labor productivity changed by 1.40%. What was the inflation rate? Round your answer to one decimal. inflation rate:Suppose the economy starts at point 1 in the aggregate supply-aggregate demand (AS-AD) graph and at point A on the Phillips curve graph. Points 2 and 3 start out stacked on point 1, but they will need to be moved to the proper locations that reflect steps 2 and 3 described below. Likewise for points B and C. The AS-AD graph reflects two aggregate demand curves (ADI and AD2), the long-run aggregate supply curve (LAS) and two short-run aggregate supply curves (SAS1 and SAS 2). The Phillips curve graph reflects the long-run Phillips curve (LRPC) and the short-run Phillips curve (SRPC). The central bank decides to lower the unemployment rate below the natural rate by decreasing the interest rate. Place point 2 on the AS-AD graph and point B on the Phillips curve graph to describe the short-run macroeconomic equilibrium that results. Likewise, place points 3 and C to describe the long-run full-employment equilibrium. LAS LRPC SAS2 SAS1 Price level Inflation rate (%) 2 3 SRPC2 A B AD1 AD2 C SRPCI Real GDP Unemployment rate (%)Suppose OPEC decides to halve oil production suddenly. In the first graph, please show the effect this will have on SRAS and AD. In the second graph, please show what will happen to the short-run Phillips curve. 110 10 109 Co SRAS 108 107 V 106 Price level 105 Inflation rate (% per year) 104 A 103 102 AD N Phillips curve 101 100 0- 0 2 4 6 10 12 14 16 18 20 0 1 2 3 4 5 6 7 8 9 10 Quantity of output (thousands) Unemployment rate (%) If policymakers choose to contract AD in response to OPEC's actions inflation will increase. unemployment will increase. inflation and unemployment will increase. O nothing will change