Which of the following is true?
A)Inflation and unemployment rates can both decrease in the short run in response to negative supply shocks.
B)Inflation and unemployment rates cannot both increase or both decrease in the short run in response to changes in aggregate demand.
C)Inflation and unemployment rates can both increase in the short run in response to positive supply shocks.
D)All of the above are true.

Question

Which of the following is true?
A)​Inflation and unemployment rates can both decrease in the short run in response to negative supply shocks.
B)​Inflation and unemployment rates cannot both increase or both decrease in the short run in response to changes in aggregate demand.
C)​Inflation and unemployment rates can both increase in the short run in response to positive supply shocks.
D)​All of the above are true.

Quizplus · Accepted Answer

The statement in option B is correct according to the Phillips curve, which shows an inverse relationship between inflation and unemployment in the short run. Therefore, if there is an increase in aggregate demand, it will cause a decrease in unemployment but an increase in inflation, and vice versa for a decrease in aggregate demand. Option A and C are incorrect since they suggest that inflation and unemployment can move in the same direction due to supply shocks, which is not supported by the Phillips curve. Option D is incorrect since only B is true.

Which of the Following Is True