(c) What is the relationship between the inflation and unemployment rate in the AS or PC curve both in the long run and

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C What Is The Relationship Between The Inflation And Unemployment Rate In The As Or Pc Curve Both In The Long Run And 1 (254.82 KiB) Viewed 35 times

(c) What is the relationship between the inflation and unemployment rate in the AS or PC curve both in the long run and in the short run? Draw the diagram (d) Use a diagram to illustrate the policy mistake in the 1970s when the U.S. government tried to maintain unemployment below “natural rate” of unemployment and inflation of the U.S. economy spiraled out of control. What is wrong? Write down the expectation augmented Phillips curve. (e) Use the AD-AS diagram to illustrate short run economic fluctuations after a positive aggregate demand shock (hint: AD curve shifts to the right; SRAS adjust over time; the last graph in the Business_cycle handout) (f) Use the IS-MP diagram and the PC curve to illustrate the following scenario: 1) positive external shock on IS. 2) later central bank raises nominal interest rates to cool down the economy and move the output gap back to the original level.