Question: Assume that the information below shows the unemployment and inflation rate in Canada as a result of a shift in Aggregate Demand.
Unemployment rate Inflation rate
2015 3% 8%
2016 5% 5%
1. Assume that the natural rate of unemployment in Canada is 4%. Draw a correctly labeled graph of the long-run Phillips curve and label it as LRPC.
2. What is the relationship between the unemployment rate and the inflation rate in the long run?