The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.

A)point a
B)point e
C)point c
D)point d
E)a point to the right of point b

Question

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.

A)point a 
B)point e 
C)point c​ 
D)point d 
E)a point to the right of point b

Quizplus · Accepted Answer

If government purchases increase, it will lead to an increase in aggregate demand, shifting the AD curve to the right. This will result in an increase in both the price level and the level of output, moving the economy from point b to point c. At point c, there will be a higher inflation rate and a lower unemployment rate compared to point b. Therefore, the best choice is C.

The Figure Below Reflects the Inverse Relationship Between the Inflation