Consider the Following Phillips Curve Diagram: (A)The Economy Is

question 148

Essay

Consider the following Phillips curve diagram: (a)The economy is currently at point A with unemployment of 6% and inflation of 4%.The President has informed you that she is about to undertake an expansionary fiscal policy designed to lower unemployment from its current rate of 6% to 4%.She asks you what will happen in the economy as a result of her policy.Base your answer on the Phillips curve in the above diagram.
(b)How would your answer to (a)above change if you were to take into account potential changes in inflation expectations and their impact on actual inflation?

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