-Refer to the above diagram for a specific economy.The shape of this curve suggests that:
A) the price level rises at a diminishing rate as the level of aggregate demand increases.
B) full employment and price stability are compatible goals only when aggregate demand is falling.
C) each successive unit of decline in the unemployment rate is accompanied by a smaller increase in the rate of inflation.
D) each successive unit of decline in the unemployment rate is accompanied by a larger increase in the rate of inflation.

Question

-Refer to the above diagram for a specific economy.The shape of this curve suggests that:
A) the price level rises at a diminishing rate as the level of aggregate demand increases. 
B) full employment and price stability are compatible goals only when aggregate demand is falling. 
C) each successive unit of decline in the unemployment rate is accompanied by a smaller increase in the rate of inflation. 
D) each successive unit of decline in the unemployment rate is accompanied by a larger increase in the rate of inflation.

Quizplus · Accepted Answer

The curve likely represents a Phillips Curve, which shows that as unemployment decreases, inflation increases at an increasing rate.

-Refer to the Above Diagram for a Specific Economy