Graphs

Question 1

The curve shows an inverse trade-off between inflation and unemployment due to temporary wage and price rigidities, while the vertical curve reflects that in the long-run there is no trade-off as unemployment returns to the NAIRU.

Answer 1

Long & short run Phillips curve (see photo)

Question 2

A rightwards shift in AD results in short-term increased inflation and output.

Answer 2

Demand-pull inflation diagram (see photo)

Question 3

A leftward shift in AS results in supply constraints that decrease output and increase inflation.

Answer 3

Cost-push inflation diagram (see photo)