Solved Assignment Booklet
Compiled from the worksheet you uploaded. Repeated versions of the same question were consolidated, and the
graphs were redrawn cleanly in one place for each unique question.
1. RBC theory: productivity increase in the loanable-funds market
Question summary: The worksheet asks for the market for loanable funds when a new technology raises
productivity.
Answer: Draw DLF$_0$ and SLF$_0$ first. Then show a rightward shift of demand for loanable funds to
DLF$_1$. The new equilibrium has a higher real interest rate and a higher quantity of loanable funds.
Graph recreated for the solved answer.
2. RBC theory: productivity increase in the labour market
Question summary: The worksheet asks for the labour market when a new technology raises productivity.
Answer: Draw LD$_0$ and LS$_0$ first. Then show the productivity effect with new curves to the right: labour
demand rises and labour supply also rises. The new equilibrium shows more labour employed and a higher real
wage rate.
Graph recreated for the solved answer.
3. Demand-pull inflation spiral
Question summary: Multiple choice: What must happen to create a demand-pull inflation spiral? The graph
labels the movement from point A through the spiral.
Answer: Answer: D. The quantity of money must persistently increase. On the graph, the spiral runs from A to E
through the successive AD/SAS shifts.
Graph recreated for the solved answer.
4. Cost-push inflation spiral
Question summary: Multiple choice: What can cause cost-push inflation, and what path does the spiral follow?
Answer: Answer: A. An increase in the money wage rate or an increase in the money prices of raw materials can
cause cost-push inflation. The spiral path is B → E → G → I.
Graph recreated for the solved answer.
5. Reuters news clip: U.S. consumer inflation in June 2020
Question summary: The clip says businesses reopened, people went shopping, the CPI increased, and the Fed
was increasing the quantity of money.
Answer: Answer: demand-pull inflation. Draw the AD curve shifting right once and mark the new equilibrium.
Because the question says the actions do not lead to an inflation spiral, the economy only moves to the new
one-time AD equilibrium.
Graph recreated for the solved answer.
6. China: one-time rise in commodity prices
Question summary: The worksheet asks for the initial effect of higher commodity prices in the AD-AS model.
Answer: A one-time rise in commodity prices shifts short-run aggregate supply left/up. The result is a higher price
level and lower real GDP in the short run.
Graph recreated for the solved answer.
7. China: commodity prices, central-bank response, and wage adjustment
Question summary: The worksheet asks for the chain of curves C1, C2, C3, and C4 that show repeated shocks
and policy responses.
Answer: C1: left/up SRAS shift from the commodity shock. C2: AD shifts right when the central bank responds.
C3: another left/up SRAS shift from a second commodity shock. C4: another AD response or wage adjustment
that returns the economy to potential GDP.
Graph recreated for the solved answer.
8. Correctly expected inflation and the LAS curve
Question summary: The worksheet asks what happens to the wage rate as we move up the long-run aggregate
supply curve.
Answer: Answer: B. The real wage rate is constant. In the correct-expectations case, nominal wages and the
price level rise together, so the economy stays on LAS at full employment.
Graph recreated for the solved answer.
9. A rise in the price of oil
Question summary: The worksheet asks what happens when the price of oil rises.
Answer: Answer: D. A rise in the price of oil creates a one-time cost-push rise in the price level. The short-run
effect is a left/up shift of SRAS and a fall in real GDP.
Graph recreated for the solved answer.
10. Correctly anticipated inflation
Question summary: The worksheet asks what happens when inflation is correctly anticipated.
Answer: Answer: A. The economy remains at full employment. The AD and SAS curves shift in a way that keeps
real GDP on the LAS, while the price level rises.
Graph recreated for the solved answer.
11. Bernanke: 1970s-style wage-price spiral
Question summary: The worksheet asks for the sequence of oil shocks and monetary responses that can
recreate a wage-price spiral.
Answer: Show an initial left/up SRAS shift from the oil shock, then an AD shift right from monetary expansion,
then another SRAS shock, followed by another AD response. The result is stagflation with a higher price level.
Graph recreated for the solved answer.
12. Expected deflation
Question summary: The worksheet starts at AD$_0$ and SAS$_0$ and asks what happens if people expect
deflation while AD stays at AD$_0$.
Answer: Draw a new short-run aggregate supply curve to the right/down of SAS$_0$ because expected deflation
lowers wages. The answer to the multiple choice is A: the money wage rate rises later and the short-run aggregate
supply curve returns to its original position.
Graph recreated for the solved answer.
13. Iran: subsidy removal and the Phillips curve
Question summary: The worksheet asks for the current point and the likely path if subsidies are removed with
and without advance notice.
Answer: Current point: inflation 12% and unemployment 10%. If the price increases are unexpected, move up/left
along the SRPC to higher inflation and lower unemployment. If the new prices are announced in advance, the
short-run Phillips curve shifts upward instead.
Graph recreated for the solved answer.
14. Short-run Phillips curves with 5% and 15% expected inflation
Question summary: The worksheet asks for two SRPCs at different expected inflation rates and a
multiple-choice question about movement along the SRPC.
Answer: Draw SRPC$_1$ for 5% expected inflation and SRPC$_2$ for 15% expected inflation, with the higher
expected inflation curve shifted upward. Answer: B. A movement along the short-run Phillips curve occurs when
aggregate demand increases unexpectedly.
Graph recreated for the solved answer.
15. Unexpected increase in aggregate demand
Question summary: The worksheet asks for the effect of an unexpected increase in aggregate demand on the
short-run Phillips curve.
Answer: Draw an arrow up/left along the SRPC: inflation rises and unemployment falls. Answer: D. The natural
unemployment rate does not change.
Graph recreated for the solved answer.
16. Phillips-curve path A → B → C → D → A
Question summary: The worksheet gives points A, B, C, and D and asks for a set of short-run Phillips curves that
match the sequence.
Answer: Sketch successive SRPC shifts and place the points so that the economy moves from A to B, then to C,
then to D, and back toward A. The key idea is that each change in expected inflation shifts the SRPC, while the
LRPC stays fixed.
Graph recreated for the solved answer.
17. Stephen Poloz press briefing
Question summary: The worksheet asks whether the Canadian economy is moving along a Phillips curve or
whether the short-run curve is shifting.
Answer: Answer: D. The economy moves leftward along the short-run Phillips curve toward the long-run Phillips
curve. The output gap is closing, unemployment is falling, and inflation is drifting toward 2%.
Graph recreated for the solved answer.
18. Stagflation
Question summary: The worksheet asks for a short-run Phillips curve that would create stagflation.
Answer: Draw a new SRPC above/right of the original curve. Moving from A to B means higher inflation and
higher unemployment, which is stagflation.
Graph recreated for the solved answer.