-In the above figure, suppose that the economy currently is at point A. If the inflation rate falls and this fall is unanticipated by the public, the economy moves to a point such as point
A) B.
B) C.
C) D.
D) E.

Question

-In the above figure, suppose that the economy currently is at point A. If the inflation rate falls and this fall is unanticipated by the public, the economy moves to a point such as point
A) B. 
B) C. 
C) D. 
D) E.

Quizplus · Accepted Answer

When the inflation rate falls and this fall is unanticipated by the public, firms find that their actual costs are lower than they had expected. This situation typically leads to an increase in output and employment as firms take advantage of the lower costs, moving the economy to a point like E, which represents higher output and employment compared to the initial point A.

-In the Above Figure, Suppose That the Economy Currently Is