In a recovery phase,
A) inflation and unemployment fall.
B) inflation rises as unemployment falls.
C) inflation falls as unemployment rises.
D) inflation and real GDP rise.

Question

Quizplus · Accepted Answer

In a recovery phase, the economy is moving towards full employment and productive capacity, which leads to a decrease in unemployment. At the same time, there is an increase in demand for goods and services, but there is still slack in the economy, which prevents prices from rising rapidly. This leads to a fall in inflation. Therefore, in a recovery phase, inflation and unemployment fall.

In a Recovery Phase