The Philips Curve
Suppose the economy has been experiencing zero inflation and five percent unemployment for several years. The government decides to lower the unemployment percentage by generating some inflation. You need to do the following:
1. Using the Grapher tool, create a graph showing what the short-run effects would be and what would happen in the long run.
2. Give reasons to explain what the government would have to do to keep the unemployment rate at 3 percent.