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Suppose that in 2020, the natural rate of unemployment is 5% and the actual rate of...

Suppose that in 2020, the natural rate of unemployment is 5% and the actual rate of unemployment is also 5%. Also inflation equals 4% and people expect inflation to be 4% next year (and all years thereafter). Using the Phillips curve logic, suddenly there is a rise in aggregate demand (maybe due to a jump in investment or government spending, maybe a tax cut.)

A. in the short run by 2021, what happens to inflation and unemployment ? Explain why ?(maybe using a phillips curve graph)

B. Assuming people have adaptive expectations (meaning that they base their expectation of inflation on what inflation had been recently), how would the short run phillips curve shift?

C. In the long run what happens to unemployment? (higher lower or equal to 5%)

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