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 demand for goods and services in an economy exceeds what can be produced at full employment, leading to rising prices. When this situation happens, businesses may hire more workers to keep up with the increased demand, which can lower the unemployment rate. However, as the economy operates above its capacity, it can also create pressure on prices, causing inflation to rise. For example, if a city experiences a sudden increase in tourism, restaurants may hire extra staff to serve more customers, reducing unemployment in that sector. Thus, while inflationary gaps can temporarily lower unemployment, they can also lead to long-term economic issues if not managed properly.
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 strong, 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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