27 EXHIBIT 1 The Theoretical Relationship between Changes in Aggregate Demand and the Phillips Curve ( a ) I n c r e s i g t d m ( b ) M o v e m n t a l g h P i p s c u r A S A D 4 1 1 6 1 6 A D 3 D D 1 1 2 A D 2 1 2 P r i c e l v ( C I , 1 9 8 2 – 4 = ) C I n f l a t i o r e ( p c ) C 1 8 8 A D 1 B B 1 4 4 P h i l p s c u r v e A F u l e m p o y n t A 1 5 . 8 6 . 6 . 2 6 . 4 6 . 6 6 . 8 2 4 6 8 1 R e a l G D P U n e m p l o y m e n t r a t e ( t r i l l i o n s o f d o l l a r s ) ( p e r c e n t )

EXHIBIT 2 The Phillips Curve for the United States in the 1960s 27 EXHIBIT 2 The Phillips Curve for the United States in the 1960s 6 6 9 5 I n f l a t i o n 6 8 r a t e 4 ( p e r c e n t ) 6 7 3 6 2 6 5 6 6 4 6 3 6 1 1 2 6 1 2 3 4 5 6 7 U n e m p l o y m e n t r a t e ( p e r c e n t ) Source: Economic Report of the President, 2001, http://w3.access.gpo.gov/eop/,Tables B-35 and B-64.

27 EXHIBIT 3 Inflation and Unemployment Rates for the Unites States, 1970–2000 1 4 8 1 3 1 2 7 9 7 4 1 1 8 1 1 7 5 9 I n f l a t i o n 8 7 8 r a t e ( p e r c e n t ) 7 7 7 3 8 2 6 7 9 7 6 7 1 5 8 9 9 1 8 4 8 4 2 7 2 8 7 8 5 8 3 3 9 5 9 3 9 2 9 7 9 6 9 4 2 9 8 6 1 9 8 1 2 3 4 5 6 7 8 9 1 Source: Bureau of Labor Statistics, ftp://ftp.ls.gov/pub/.special.requests/cpi/cpiai.txt and http://stats.bls.gov/webapps/legacy/cpsatab1.htm, Table A-1. U n e m p l o y m e n t r a t e ( p e r c e n t )

EXHIBIT 4 The Short-Run and Long-Run Phillips Curves 27 EXHIBIT 4 The Short-Run and Long-Run Phillips Curves C A U S T I O N H h o r t - u n a d p i v e x c s y A g r e a t d m n i c s I n f l a t i o r e s , w g d p U n e m p l o y t r a f s L o n g - r u P h i l p s c v e 1 5 P C 3 F G 1 2 P C 2 I n f l a t i o r e ( p c ) P C 1 L o n g - r u a d p t i v e x c s h y D E 9 I n f l a t i o r e s c h g , w k ’ m d p U n e m p l o y t r a i s d f u S h o r t - u n P i l p s c v e B C 6 A 3 N a t u r l e R a t i o n l e x p c s h r y A g r e a t d m n i c s I n f l a t i o r e s d m w g j u q c k y I n f l a t i o r e s v c u m p y 2 4 6 8 1 U n e m p l o y t r a ( c )

EXHIBIT 5 Money Supply Growth and Presidential Elections, 1960–2000 27 EXHIBIT 5 Money Supply Growth and Presidential Elections, 1960–2000 1 6 C l i n t o ( 1 9 2 ) 1 4 1 2 R e a g n ( 1 9 8 4 ) 1 N i x o n ( 1 9 7 2 ) n R e a g ( 1 9 8 ) N i x o n ( 1 9 6 8 ) C a r t e ( 1 9 7 6 ) 8 P e r c e n t a g e c h a n g e i n J o h n s ( 1 9 6 4 ) B u s h ( 1 9 8 ) 6 m o n e y s u p p l y ( M 1 ) 4 2 C l i n t o ( 1 9 6 ) – 2 B u s h ( 2 ) – 4 – 6 1 9 6 1 9 6 4 1 9 6 8 1 9 7 2 1 9 7 6 1 9 8 1 9 8 4 1 9 8 8 1 9 9 2 1 9 9 6 2 P r e s i d e n t i a l e l e c t i o n y e a r Source: Economic Report of the President, 2001, http://w3.access.gpo.gov/eop/,Table B-69; and Federal Reserve Board, http://www.federalreserve.gov/releases/H6/hist/h6hist1.txt.

EXHIBIT 6 Adaptive Exceptions versus Rational Exceptions 27 EXHIBIT 6 Adaptive Exceptions versus Rational Exceptions S R A 2 S R A 1 L R A S A D 1 A D 2 1 1 E 3 P r i c e l v ( C I , 1 9 8 2 – 4 = ) E 2 1 5 1 E 1 N a t u r l e 5 . 5 . 5 6 . 6 . 5 7 . 7 . 5 R e a l G D P ( t r i o n s f d p y )

EXHIBIT 10 Short-Run and Long-Run Phillips Curves 27 EXHIBIT 10 Short-Run and Long-Run Phillips Curves L o n g - r u P h i l p s c v e S h o r t - u n P i l p s c v e 1 2 1 9 E 1 I n f l a t i o n r a t e 8 ( p e r c e n t ) D 6 4 N a t u r l e 4 5 6 7 8 9 U n e m p l o y t r a ( c )