(25 points) Phillip"s Curve and AD-AS Model: Use assumptions below to set up an initial point denoted as the point A for a, b and c. For each of the...
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Q2. (25 points) Phillip”s Curve and AD-AS Model: Use assumptions below to set up an initialpoint denoted as the point A for a, b and c. For each of the following draw an AD/AS diagram anda corresponding Phillip’s curve assuming the following: (I) Suppliers produce more goods and services when price increases (2) Actual GDP is 20,000 (3) Full employment GDP is 15,000 (4) The natural rate of unemployment is 5.5% and Actual unemployment is 4% (5) Discretionary policies are needed because wages are sticky (6) Actual unemployment and output fluctuate around 5.5% and 15,000 respectively ail-Show in both diagrams the effects of an increase in income tax on price level, output, unemployment and inflation. (Hint: Fiscal Policy) 13. Show in both diagrams the effects of the Quantitative Easing (QE) on price level, output,unemployment and inflation. (Hint: Monetary Policy)
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