Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher inflationary gaps lead to higher unemployment rates
B
Inflationary gaps occur when the unemployment rate is below the natural rate
C
Inflationary gaps do not affect the unemployment rate
D
Lower inflationary gaps result in increased unemployment
Understanding the Answer
Let's break down why this is correct
Answer
An inflationary gap occurs when the economy is producing more goods and services than it can sustain, leading to higher prices. This situation often happens when unemployment is low because more people are working and spending money. When many people have jobs, businesses try to keep up with demand, which can push prices up even more. For example, if a city has very low unemployment and everyone is buying new cars, car prices might rise rapidly due to high demand. Therefore, an inflationary gap usually means low unemployment, but it can lead to price increases that affect everyone in the economy.
Detailed Explanation
An inflationary gap happens when the economy is doing really well. Other options are incorrect because This answer suggests that when the economy is booming, more people lose jobs; This option says inflationary gaps don't change unemployment.
Key Concepts
unemployment rate
Topic
Inflationary Gaps and Unemployment
Difficulty
easy level question
Cognitive Level
understand
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