Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs. The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices. Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand. AD Price level LRAS SRAS

Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs. The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices. Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand. AD Price level LRAS SRAS

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 25CTQ: Imagine that the government statisticians who calculate the inflation rate have been updating the...

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