Demand shocks cause unemployment and inflation to move in the same direction.

Question

Quizplus · Accepted Answer

Demand shocks can cause an increase in unemployment if the demand for goods and services decrease, leading to a decrease in production and hence jobs. However, at the same time, the decrease in demand can also lead to a decrease in prices, resulting in deflation rather than inflation. Therefore, demand shocks do not necessarily cause unemployment and inflation to move in the same direction.

Demand Shocks Cause Unemployment and Inflation to Move in the Same