The relationship between the AS-AD model and the Phillips curve points out that as aggregate demand increases, the unemployment rate
A)decreases and the inflation rate rises.
B)increases and the inflation rate rises.
C)decreases and the price level falls.
D)increases and the inflation rate falls.
E)decreases and the inflation rate does not change, only the price level rises.

Question

Quizplus · Accepted Answer

As aggregate demand increases, it leads to higher output and employment, reducing unemployment. This increased demand can also lead to higher prices, causing the inflation rate to rise, consistent with the Phillips curve trade-off between unemployment and inflation.

The Relationship Between the AS-AD Model and the Phillips Curve