MOD-3.B—Explain (using graphs as appropriate) the response of unemployment and inflation in the short run and in the long run

Explain (using graphs as appropriate) the response of unemployment and inflation in the short run and in the long run.

• Demand shocks correspond to movement along the SRPC.
• Supply shocks correspond to shifts of the SRPC.
• Factors that cause the natural rate of unemployment to change will cause the LRPC to shift.
• Enduring understanding MOD-3: The Phillips curve model is used to represent the relationship between inflation and unemployment and to illustrate how macroeconomic shocks affect inflation and unemployment.