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In: Economics

Graphically derive short run Phillips curve with the help of aggregate demand and supply and demand.

Graphically derive short run Phillips curve with the help of aggregate demand and supply and demand.

 

Solutions

Expert Solution

The opposite relationship between joblessness and the level of price increase is displayed in the Philips curve. In designing the predictive methods utilized by financial institutions and other forecasting agencies, the Phillips Curve has been prominent.

The Short-run Phillips curve is diagrammatically displayed.

 

The aggregate supply curve is static. The initial aggregate demand curve is ' AD0,' and the equilibrium point is a. Assume the overall demand rises, allowing the curve to move rightward to angles AD2.  If overall demand grows, unemployment declines because more employees are employed, real GDP improves, and the price level rises; a demand-pull inflation phenomenon is defined in this context. These two variables are identified from points a' to c' as similar motions throughout the Phillips curve. From the initial equilibrium point, a shows associated inflation rate and unemployment rate a'. Thus, the Short-run Philips curve is derived.

It highlights a significant aspect: shifts in aggregate demand induce fluctuations throughout the Phillips curve.

 

Answers can be found in the Explanation section.

 

 

DogeShow answered 2 years ago
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