The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.
Figure 16.3

A)point a
B)point e
C)point c
D)point d
E)a point to the right of point b

Question

The figure below reflects the inverse relationship between the inflation rate and the unemployment rate.If the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to _____.​ ​
Figure 16.3

A)point a 
B)point e 
C)point c 
D)point d 
E)a point to the right of point b

Quizplus · Accepted Answer

According to the figure, an increase in government purchases would shift the aggregate demand curve to the right. This would cause an increase in output (real GDP) and a decrease in unemployment. However, in the short run, this would also cause an increase in the inflation rate. Therefore, the economy would move to a point with a higher inflation rate and lower unemployment rate, such as point C. Points to the right of point B would have even higher inflation rates and lower unemployment rates, but we cannot be sure exactly where the new equilibrium point will be.

The Figure Below Reflects the Inverse Relationship Between the Inflation