-Refer to Exhibit 16.6, which reflects the relationship between the inflation rate and the unemployment rate. If the economy started near point b and government purchases increased, we would expect the economy in the short run to move to _____
A) point a.
B) point e.
C) point c.
D) point d.
E) a point to the right of point b.

Question

-Refer to Exhibit 16.6, which reflects the relationship between the inflation rate and the unemployment rate. If the economy started near point b and government purchases increased, we would expect the economy in the short run to move to _____
A) point a. 
B) point e. 
C) point c. 
D) point d. 
E) a point to the right of point b.

Quizplus · Accepted Answer

In the short run, an increase in government purchases typically leads to higher aggregate demand, which can reduce unemployment and increase inflation. This would move the economy from point b to point c, where there is lower unemployment and higher inflation.