Use the following to answer questions .
Exhibit: The Inflation-Unemployment Cycle
-(Exhibit: The Inflation-Unemployment Cycle) Expansionary policy to counter a recessionary gap would lead to a:
A) higher price level and higher unemployment level.
B) lower price level and less unemployment.
C) higher price level and less unemployment.
D) lower price level and more employment.

Question

Use the following to answer questions .
Exhibit: The Inflation-Unemployment Cycle 
-(Exhibit: The Inflation-Unemployment Cycle) Expansionary policy to counter a recessionary gap would lead to a:
A) higher price level and higher unemployment level. 
B) lower price level and less unemployment. 
C) higher price level and less unemployment. 
D) lower price level and more employment.

Quizplus · Accepted Answer

Expansionary policy involves increasing government spending or lowering interest rates to stimulate economic activity and reduce unemployment. This would lead to higher aggregate demand and higher prices (inflation), but also less unemployment. Therefore, the correct choice is C - higher price level and less unemployment.

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