The figure given below represents the short run and long run Phillips curve.
Figure 14.4

-Refer to Figure 14.4. Suppose the economy is located at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy will move to:

Question

The figure given below represents the short run and long run Phillips curve.
Figure 14.4
 
-Refer to Figure 14.4. Suppose the economy is located at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy will move to:

Quizplus · Accepted Answer

Under the adaptive expectations hypothesis, people adjust their expectations based on past experiences. In the short run, increased government spending will boost aggregate demand, reducing unemployment and moving the economy from point A to point B.

The Figure Given Below Represents the Short Run and Long