What movement would occur on an economy's simple Phillips curve when the economy's aggregate demand curve shifts to the left? There would be a movement to a _____ point on the curve with:
A) lower; higher unemployment and lower inflation.
B) higher; higher unemployment and lower inflation.
C) lower; lower unemployment and higher inflation.
D) higher; lower unemployment and higher inflation.

Question

Quizplus · Accepted Answer

A leftward shift in the aggregate demand curve in an economy typically leads to higher unemployment and lower inflation, which corresponds to a movement to a higher point on the simple Phillips curve, indicating a trade-off between inflation and unemployment. However, the correct terminology in the context of the Phillips curve's graphical representation is a movement to a "lower" point for higher unemployment and lower inflation, which might be a misunderstanding in the phrasing of the options. The correct economic outcome aligns with option A's description of the effects (higher unemployment and lower inflation), but the use of "lower" or "higher" point might be confusing without specifying the axis orientation.

What Movement Would Occur on an Economy's Simple Phillips Curve