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Quesiton: Assume that the information below shows the unemployment and inflation rate in Canada as a result of a shift in Aggregate Demand.

Unemployment rate Inflation rate

2015 3% 8%

2016 5% 5%

1. Assume that the natural rate of unemployment in Canada is 4%. Draw a correctly labeled graph of the long-run Phillips curve and label it as LRPC.

2. What is the relationship between the unemployment rate and the inflation rate in the long run?

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