In the short run, if the economy is in the Phillips phase of the inflation-unemployment cycle, An increase in aggregate demand will generate

Question

Quizplus · Accepted Answer

In the Phillips phase of the inflation-unemployment cycle, there is a trade-off between inflation and unemployment, meaning that as unemployment decreases, inflation increases and vice versa. Therefore, an increase in aggregate demand will lead to an increase in the price level as producers increase their output, but it will also lead to a decrease in the unemployment rate as more workers are hired to meet the increased demand. Thus, the correct answer is B - an increase in the price level and a decrease in the unemployment rate.

In the Short Run, If the Economy Is in the Phillips