Suppose that a fall in consumer spending causes a recession. a. Illustrate the immediate
Chapter 35, Problem Problems and Applications 35.3(choose chapter or problem)
Suppose that a fall in consumer spending causes a recession. a. Illustrate the immediate change in the economy using both an aggregate-supply/ aggregate-demand diagram and a Phillips-curve diagram. On both graphs, label the initial long-run equilibrium as point A and the resulting short-run equilibriumas point B. What happens to inflation andunemployment in the short run?b. Now suppose that over time expectedinflation changes in the same direction thatactual inflation changes. What happens to theposition of the short-run Phillips curve? Afterthe recession is over, does the economy face abetter or worse set of inflationunemploymentcombinations?
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