Question

Macropoland, a country that is a natural gas and oil importer, has a natural rate of unemployment (at the full employment level of GDP) that is about 4.5%, and the long run average rate of inflation over time has been about 2%. However, during the period 1973-1974, the country experienced an inflation rate of about 15% while simultaneously experiencing unemployment of nearly 13%.

At the present time, Macropoland is experiencing very sluggish consumption and investment (a result of a fall in the housing market), and unemployment has again edged up to around 9%. Inflation is very low at 0.4%.

Macropoland has just hired you as their economic advisor. You have a big job ahead of you. Using your knowledge of aggregate demand and aggregate supply, can you explain what happened in these two time periods?

Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

Answer 1

Answer:- Giren Macropoland natural gas information Explanation: • In 1973 -74 macsopoland experienced high rate of inflation and high rate of unemployment The combination of high unemployment and high inflation is generally termed os stag inflation: usually inflation and unemployment has an inverse correlation ie when unemployment is high inflation is low and when unemployment is low inflation is high. This relationship is logical as when there is onemployment demand for goods decreases and there is less inflation again when chemployment is low demand for goods increases and there is high inflation.

positive correlation imposes a lot of problem for fiscal policy makers and there is no easy way to solve Stag inflation · Interest rates may be raised to control inflation bout the economy would contract • GOP would fall and there will be loss of jobs. • However during recovery, Gop will rise and lost jobs will be gained again. . As for eg America experienced stag inflation in the 1970's and one reason is that president Nixon removed the us dollar from the gold standard. . At present macropoland is again experiencing inverse relation between unemployment and inflation and there is sluggish growth. unemployment as high at 9h but inflation is low

at 0.4.1. As there is high unemployment, demand for goods is Less, and so prices are at a low level. • Therefore inflation is low. There is less consumption and investment is low 8o the growth of the economy is less. - o-