ASS#3_ECON201 - VARUNGOELASSIGNMENT#3 ECON201 100109186...

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VARUN GOEL                                                    ASSIGNMENT #3  ECON 201   100109186                                                                                                  CH-12      7)            Stagflation phase scripts high unemployment rate with alarmingly high inflation rate.  However, during ‘Recovery stage’ policy makers can be expected to boost aggregate demand  (public policies) in the economic cycle and thus pushing price levels higher (but less than that in  stagflation stage). This will bring the inflation down and since it’s profitable for businesses to  increase output (Increased price levels) unemployment will also fall. Illustration on a Phillips curve diagram is in paint file separately attached . 13)    It will …… increase both interest rates and unemployment. In order to combat inflation  contractionary policy would be undertaken that will in turn decrease money-supply (Inflation  expectations increases) which would result in increase in the aggregate demand for the money  and thus eventually creating higher interest rates.   Contractionary monetary policy raises short term nominal interest rates which also results in a  decline in aggregate output(lower investments by businesses, businesses producing less output)  and decrease in aggregate demand(consumers cutback in spending or substitution) as well.  This  all leads to higher unemployment.  19)  All be the aforementioned parameters(high interest rates, unemployment, lost output and rising  bankruptcies)   in the question can be associated with the recession. All these parameters or  simply called ‘Recession’ can fight inflation which is an ultimate priority for the feds. By 
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This note was uploaded on 12/27/2009 for the course ECE Coen 243 taught by Professor Drlajam during the Winter '07 term at Concordia Canada.

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ASS#3_ECON201 - VARUNGOELASSIGNMENT#3 ECON201 100109186...

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