For the following questions, use the diagram below:
Figure 34-3

-Refer to Figure 34-3.Which of the following is correct?
A)Unemployment rises as the economy moves from a to b.
B)Either fiscal or monetary policy could be used to move the economy from b to a.
C)If the economy is left alone, then as the economy moves from b to long-run equilibrium, the price level will fall farther.
D)All of the above are correct.

Question

For the following questions, use the diagram below:
Figure 34-3
 
-Refer to Figure 34-3.Which of the following is correct?
A)Unemployment rises as the economy moves from a to b. 
B)Either fiscal or monetary policy could be used to move the economy from b to a. 
C)If the economy is left alone, then as the economy moves from b to long-run equilibrium, the price level will fall farther. 
D)All of the above are correct.

Quizplus · Accepted Answer

A) Unemployment rises as the economy moves from a to b because output decreases while the price level rises. 
B) Both fiscal or monetary policy could be used to move the economy from b to a. Fiscal policy could involve increasing government spending or decreasing taxes, while monetary policy could involve decreasing interest rates. 
C) If the economy is left alone, then as the economy moves from b to long-run equilibrium, the price level will fall farther because there will be a decrease in aggregate demand which will lead to a decrease in the price level.

For the Following Questions, Use the Diagram Below