-Refer to the Figure above.Suppose that the government in the economy of this diagram regards 9 per cent unemployment as unacceptable.If the government insists on trying to reduce the unemployment rate from 9 per cent to 7 per cent, regardless of the consequences, then
A)pressure will build in the economy to continuously reduce the rate of inflation.
B)the long run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment.
C)the inflation rate will increase but the unemployment rate will stay at 7 per cent.
D)in the long run the rate of unemployment remains unchanged, but inflation will probably accelerate.

Question

-Refer to the Figure above.Suppose that the government in the economy of this diagram regards 9 per cent unemployment as unacceptable.If the government insists on trying to reduce the unemployment rate from 9 per cent to 7 per cent, regardless of the consequences, then
A)pressure will build in the economy to continuously reduce the rate of inflation. 
B)the long run Phillips curve becomes horizontal, freezing the rates of inflation and unemployment. 
C)the inflation rate will increase but the unemployment rate will stay at 7 per cent. 
D)in the long run the rate of unemployment remains unchanged, but inflation will probably accelerate.

Quizplus · Accepted Answer

In the long run, attempts to reduce unemployment below the natural rate can lead to accelerating inflation without reducing unemployment, as per the Phillips curve theory.

-Refer to the Figure Above