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Published byImogene Fisher Modified over 9 years ago
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Unit 3-5: Aggregate Demand and Supply and Fiscal Policy 1
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Inflation 2 SRPC Short Run Phillips Curve Unemployment 2%9% 1% 5% When the economy is overheating, there is low unemployment but high inflation When there is a recession, unemployment is high but inflation is low
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Inflation 3 SRPC Short Run Phillips Curve Unemployment 2%9% 1% 5% What happens when AS falls causing stagflation? Increase in unemployment and inflation SRPC 1
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Inflation 4 Short Run vs. Long Run Unemployment 2%9% 1% 5% 3% 5% Long Run Phillips Curve In the long run there is no tradeoff between inflation and unemployment The LRPC is vertical at the Natural Rate of Unemployment
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AD/AS and the Phillips Curve
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Price Level 6 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Show what happens on both graphs if AD increase AD 1
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Price Level 7 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Correctly draw the LRPC and SRPC with the recessionary gap. What happens when AD falls? AD 1
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Price Level 8 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Correctly draw the LRPC and SRPC at full employment. What happens when AS falls? AS 1 SRPC 1
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Price Level 9 AD AS AD/AS and the Phillips Curve GDP R QYQY PL e LRAS Inflation SRPC Unemployment UYUY LRPC Correctly draw the LRPC and SRPC with an recessionary gap. What happens when AS goes up? AS 1 SRPC 1
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Analyzing the Economy Graphically 10
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The Good, the Bad, and the Ugly UnemploymentInflationGDP Growth Good6% or less1%-4%2.5%-5% Worry6.5%-8%5%-8%1%-2% Bad8.5 % or more9% or more.5% or less 11
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