Question

The following table shows selected data on unemployment and inflation in Canada between 1982 and 1986.

Year	Unemployment Rate (%)	Inflation Rate (%)
1982	11.0	10.8
1983	12.0	5.9
1984	11.3	4.3
1985	10.6	4.0
1986	9.7	4.2

The data for these five years have been plotted on the following graph for you. This graph will allow you to examine the relationship between unemployment and inflation during this period and solve the problems that follow.

The following graph shows the short-run Phillips curve for Canada in 1982. Shift the curve to illustrate what happened between 1982 and 1986.

Which of the following statements best describes the relationship between inflation and unemployment in Canada during this time period?

The short-run Phillips curve shifted after actual inflation was lower than expected.

The short-run Phillips curve remained stable.

The short-run Phillips curve shifted after actual inflation was higher than expected.

The following graph shows the aggregate-demand and short-run aggregate-supply curves for Canada in 1982. Shift the aggregate-supply curve to approximate what happened between 1982 and 1986.

Answer 1

Question 1)The period between 1982 and 1986 was associated by a fall in inflation rate and unemployment level.This caused a shift of the Phillips Curve to the left towards the origin implying lower employment and lower rate of inflation.

Therefore the correct answer is that The Phillips curve shifted after actual inflation was lower than expected.

Question 2)

The period between 1982 and 1986 saw a shift to the right of the Aggregate supply curve yielding more GDP at lower price level.