Refer to the diagram. Point b would not be permanent because the
A) economy would move from b to a on PC $\mathrm { PC } _ { 1 } .$
B) short-run Phillips Curve would shift from PC $\mathrm { PC } _ { 1 } \text { to } \mathrm { PC } _ { 2 }$ and unemployment would increase to The natural rate at c.
C) economy would immediately move from b to c to d.
D) economy would move from b directly to d.

Question

Refer to the diagram. Point b would not be permanent because the
A) economy would move from b to a on PC $\mathrm { PC } _ { 1 } .$ 
B) short-run Phillips Curve would shift from PC $\mathrm { PC } _ { 1 } \text { to } \mathrm { PC } _ { 2 }$ and unemployment would increase to The natural rate at c. 
C) economy would immediately move from b to c to d. 
D) economy would move from b directly to d.

Quizplus · Accepted Answer

Point b is on the short-run Phillips Curve (PC1) where there is a trade-off between inflation and unemployment. However, if the short-run Phillips Curve shifts to PC2, unemployment would increase to the natural rate at point c. Therefore, point b is not permanent as it is subject to changes in the short-run Phillips Curve.

Refer to the Diagram PC1.\mathrm { PC } _ { 1 } .PC1​.

Refer to the Diagram $\mathrm { PC } _ { 1 } .$