📚 Learning Guide
Aggregate Demand and Supply Shifts
medium

Arrange the following economic scenarios in the correct order of their impact on unemployment and inflation, considering a shift in aggregate demand: A) Increase in consumer spending B) Shift of aggregate demand curve to the right C) Decrease in unemployment D) Rise in inflation

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Learning Path
Learning Path

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Choose the Best Answer

A

A→B→C→D

B

A→C→B→D

C

B→A→D→C

D

B→C→D→A

Understanding the Answer

Let's break down why this is correct

Answer

When there is an increase in consumer spending, people buy more goods and services. This extra demand causes the aggregate demand curve to shift to the right, which means more products are needed. As businesses hire more workers to meet this demand, unemployment decreases because more people find jobs. However, as more money is spent and demand rises, prices can go up, leading to inflation. So, the correct order is: first, an increase in consumer spending leads to a shift in the aggregate demand curve to the right, which then decreases unemployment and finally causes a rise in inflation.

Detailed Explanation

When people spend more, it increases demand for goods. Other options are incorrect because This option suggests that unemployment decreases before demand shifts; This order implies demand shifts before any spending happens.

Key Concepts

Aggregate Demand
Unemployment and Inflation
Phillips Curve
Topic

Aggregate Demand and Supply Shifts

Difficulty

medium level question

Cognitive Level

understand

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