Suppose the economy is in a long-run equilibrium with the unemployment rate at 6% and inflation rate at 3%. Illustrate with the use of diagrams the effects of the following developments on both the short-run and long-run Phillips curves. Give the economic reasoning underlying your answers. (a) A rise in the natural rate of unemployment. (b) A decline in the price of imported oil. (c) A rise in government spending. (d) A decline in expected inflation.
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