Answer to Question #47866 in Macroeconomics for Aditi
a. What evidence does GI present to support the view that Canada had entered a recession?
b. Use a short-run Phillips curve to explain why the inflation rate may decrease over the course of 2009.
c. Under what circumstances might the inflation rate not decrease during 2009?
b. The Phillips curve is a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result in an economy. Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of inflation. So, the inflation rate may decrease over the course of 2009 due to the increase in unemployment.
c. The inflation rate may not decrease during 2009, if unemployment will decrease or if there will be a stagflation, a portmanteau of stagnation and inflation, is a term used in economics to describe a situation where the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high. It raises a dilemma for economic policy since actions designed to lower inflation may exacerbate unemployment, and vice versa.
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