In case of business cycles, if output rises above the trend line

Name: In case of business cycles, if output rises above the trend line
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Question

Quizplus · Accepted Answer

When output rises above the trend line, it means that the economy is expanding and there is an increase in the demand for labor. This leads to a decrease in unemployment. However, as there is increased demand for goods and services, it leads to an increase in prices, which causes inflation to rise. Therefore, unemployment falls and inflation rises.

In Case of Business Cycles, If Output Rises Above the Trend