Question

1.

Choose a representative country, identify and describe a demand or supply shock. Examine its effect using the AD/AS curves on Inflation, unemployment and Output. Using data, examine the relationship between unemployment and Inflation due to the shock.

Answer 1

The Phillips curve relates the rate of inflation with the rate of unemployment. The Phillips curve argues that unemployment and inflation are inversely related as levels of unemployment decreases,inflation increases. There relationship, however is not linear

A Supply SHOCK is an unexpected even that changes the supply of a product , resulting in a sudden change in price.

Lets assume that demand is unchanged , a negative supply shock causes a product price to spike upward, while a possitive supply SHOCK decreases the price

IN DEVELOPING ECONOMIES LIKE PAKISTAN RATE OF INFLATION KEEP ON INCREASING as RATE OF EMPLOYMENT IS DECREASING FOR TERRORISM BEING SPONSORED BY THEM