Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It always increases unemployment due to higher prices.
B
It decreases unemployment as firms hire more workers to meet demand.
C
It has no effect on unemployment rates in the short run.
D
It leads to structural unemployment due to market inefficiencies.
Understanding the Answer
Let's break down why this is correct
Answer
When aggregate demand increases, it means that people and businesses want to buy more goods and services. This higher demand can lead to businesses hiring more workers to keep up with the increased production needed to meet this demand. As a result, the unemployment rate may go down because more people find jobs. However, if the economy is already operating at full capacity, this increased demand can cause prices to rise, leading to demand-pull inflation. For example, if more people buy cars, car manufacturers may need to hire additional workers, reducing unemployment, but the prices of cars might also increase due to the high demand.
Detailed Explanation
When demand goes up, businesses need more workers to make more products. Other options are incorrect because Some might think that higher prices always mean more job loss; It's a common belief that demand changes don't affect jobs right away.
Key Concepts
Unemployment rate
Demand-pull inflation
Labor market dynamics
Topic
Aggregate Demand and Unemployment
Difficulty
hard level question
Cognitive Level
understand
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