1) Explain why the AggregateSupply curve becomes increasingly steeply sloped at levels of RGDP near”full employment” and becomes especially steeply sloped beyond”full employment” RGDP (hint: this topic is not discussed in yourtext… you will need to understand this week’s lecture notes to answer this).2) Why might the rate at which theAggregate Supply curve shifts vertically upward increase when an economyproduces beyond full employment. (Hint: think about the effect of very lowunemployment rates on the balance of bargaining power between employers andworkers)3) Explain why inflation rates arelikely to rise when an economy expands beyond full employment capacity output. Drawan aggregate supply-aggregate demand diagram to illustrate your answer.(Hint: utilize your answers to #1 & #2 to answer this question)4) Suppose worker productivityincreased at the rate of 1.9% per year. If the labor force grew by 1.5% peryear, what rate of increase in RGDP would be sustainable without increasinginflation pressures?5) In the period 2000-2003, the RGDP(real GDP adjusted for inflation) growth rate in the US averaged 2.39% peryear, while inflation rates remained at around 2.53% per year. In the latterhalf of the 1970’s, by contrast, inflation rates accelerated markedly eventhough annual growth in RGDP did not exceed 3%. Now in 2011-12, US economy wasslowly recovering from the great recession, what will determine whether it canin the coming years a strong growth performance similar to 2003-2006 withouttriggering a noticeable acceleration of inflation?
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