An economy has an unemployment rate of 4 percent and an inflation rate of 5 percent a year at point A in the figure. Some events occur that move the economy in a clockwise loop from A to B to D to C...

An economy has an unemployment rate of 4 percent and an inflation rate of 5 percent a year at point A in the figure.

Some events occur that move the economy in a clockwise loop from A to B to D to C and back to A.

a. Describe the events that could create this sequence.

b. Draw in the figure the sequence of the economy’s short-run and long-run Phillips curves.

c. Has the economy experienced demand-pull inflation, cost-push inflation, expected inflation, or none of these?