Suppose the current unemployment rate is 15 percent. If it rises to 20 percent
A) the economy will move up along the production possibilities curve.
B) the economy will move closer to the production possibilities curve.
C) the production possibilities curve will shift inward.
D) the economy will operate farther inside the production possibilities curve.

Question

Quizplus · Accepted Answer

An increase in unemployment indicates a decrease in the level of resources (i.e. labor) being utilized in the economy. This will result in a decrease in the production level, moving the economy farther inside the production possibilities curve. Therefore, the correct choice is D.

Suppose the Current Unemployment Rate Is 15 Percent