Figure 16-4
-Refer to Figure 16-4. At point m, how do actual and expected inflation rates and unemployment rates compare?
A)The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment.
B)The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.
C)The actual inflation rate is less than the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment.
D)The actual inflation rate is less than the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.

Question

Figure 16-4 
-Refer to Figure 16-4. At point m, how do actual and expected inflation rates and unemployment rates compare?
A)The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment. 
B)The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment. 
C)The actual inflation rate is less than the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment. 
D)The actual inflation rate is less than the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.

Quizplus · Accepted Answer

At point m, the actual inflation rate is less than the expected inflation rate, indicated by the upward sloping Phillips curve. However, the actual unemployment rate exceeds the natural rate of unemployment, indicated by the intersection of the Phillips curve and the long-run aggregate supply curve to the left of the potential GDP level. This implies that the economy is in a recessionary gap where the actual output is below the potential output and there is excess supply of labor, leading to higher unemployment rates.

Figure 16-4 -Refer to Figure 16-4. at Point M, How Do Actual