Figure 17-6

-If the economy in 34-6 (b)is experiencing an inflationary gap (point g),the economy's self-correcting process will move unemployment to ____ and inflation to ____.

Question

Figure 17-6
 
-If the economy in 34-6 (b)is experiencing an inflationary gap (point g),the economy's self-correcting process will move unemployment to ____ and inflation to ____.

Quizplus · Accepted Answer

The economy's self-correcting process will move unemployment to 5.5 percent and inflation to 7 percent. This is because the inflationary gap is causing the economy to overheat, which is leading to higher prices and wages. As prices and wages rise, businesses will start to hire more workers, which will reduce unemployment. However, the higher prices and wages will also lead to higher inflation.

Figure 17-6 -If the Economy in 34-6 (B)is Experiencing an Inflationary Gap