The following question are based on the following diagram:

-The tradeoff between unemployment and inflation occurs primarily when the economy's aggregate demand curve intersects the aggregate supply curve in
A) the horizontal range.
B) the upward-sloping range.
C) the vertical range.
D) all three ranges.
E) a manner impossible to determine from the diagram.

Question

The following question are based on the following diagram:
 
-The tradeoff between unemployment and inflation occurs primarily when the economy's aggregate demand curve intersects the aggregate supply curve in
A) the horizontal range. 
B) the upward-sloping range. 
C) the vertical range. 
D) all three ranges. 
E) a manner impossible to determine from the diagram.

Quizplus · Accepted Answer

The tradeoff between unemployment and inflation occurs primarily in the upward-sloping range where the aggregate supply curve is positively sloped, indicating that as the economy moves towards full employment, prices and wages begin to rise, leading to inflation. To combat inflation, policymakers may slow down the economy, leading to higher unemployment. This tradeoff is not present in the horizontal range where changes in aggregate demand only lead to changes in output with no effect on prices or wages, or in the vertical range where changes in aggregate demand only lead to changes in prices with no effect on output or unemployment.

The Following Question Are Based on the Following Diagram