Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Unemployment decreases and inflation increases
B
Unemployment increases and inflation decreases
C
Both unemployment and inflation remain constant
D
Unemployment decreases and inflation remains constant
Understanding the Answer
Let's break down why this is correct
Answer
When aggregate demand increases and short-run aggregate supply stays the same, it usually leads to higher prices and lower unemployment in the economy. This is because more people want to buy goods and services, so businesses respond by raising prices. As a result, on the Phillips curve, which shows the relationship between inflation and unemployment, we would see a movement along the curve towards higher inflation and lower unemployment. For example, if a new technology makes people want to buy more gadgets, businesses might raise prices due to increased demand, leading to a situation where we have both higher inflation and fewer people out of work. Overall, this shift illustrates the trade-off between inflation and unemployment in the short run.
Detailed Explanation
When demand goes up, businesses hire more workers to meet the demand. Other options are incorrect because This option suggests that more demand leads to fewer jobs, which is the opposite of what happens; This choice implies that changes in demand have no effect, which isn't true.
Key Concepts
Aggregate Demand
Short-Run Aggregate Supply
Phillips Curve
Topic
Aggregate Demand and Supply Shifts
Difficulty
hard level question
Cognitive Level
understand
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