-Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will ____
A) move toward point a.
B) move toward point b.
C) stay at point c.
D) move toward point d.
E) move toward point f.

Question

-Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will ____
A) move toward point a. 
B) move toward point b. 
C) stay at point c. 
D) move toward point d. 
E) move toward point f.

Quizplus · Accepted Answer

In the long run, an increase in aggregate demand will lead to higher inflation and a return to the natural rate of unemployment, moving the economy toward point a, which represents the long-run Phillips curve.