Asked by Karina Goldberg on May 04, 2024
Verified
Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain.
Aggregate Demand
Sum of all requests for goods and services within an economic system at a certain unified price level over a specified period.
Aggregate Supply Model
An economic model that represents the total supply of goods and services that firms in an economy plan on selling during a specific time period, across all price levels.
Phillips Curve
An economic theory suggesting an inverse relationship between the rate of inflation and the rate of unemployment in an economy.
- Elucidate how policies enacted by central banks affect unemployment and inflation, emphasizing the importance of expectation in this dynamic.
Verified Answer
JM
Julia MerchantMay 06, 2024
Final Answer :
Consider what happens when the aggregate-demand curve shifts. For example, suppose there is an increase in aggregate demand. The aggregate demand and supply model shows that prices and output will rise. Rising prices mean that there is inflation. Rising output means falling unemployment. Thus, a shift in the aggregate-demand curve along the aggregate-supply curve corresponds to a movement along the Phillips curve.
Learning Objectives
- Elucidate how policies enacted by central banks affect unemployment and inflation, emphasizing the importance of expectation in this dynamic.