Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Decreasing consumption leading to higher unemployment
B
Increasing investment leading to lower inflation
C
Maintaining constant demand leading to stable inflation
D
Increasing government spending leading to lower unemployment
Understanding the Answer
Let's break down why this is correct
Answer
The relationship between inflation and unemployment, often illustrated by a seesaw, suggests that when one side rises, the other tends to fall. In the context of increased personal income taxes, people have less money to spend, which usually leads to decreased consumption. This drop in spending can hurt businesses, causing them to reduce their workforce, which results in higher unemployment. Therefore, the correct comparison is that increased taxes decrease consumption, leading to higher unemployment, much like one side of the seesaw going down as the other goes up. This aligns with option A: decreasing consumption leading to higher unemployment.
Detailed Explanation
When personal income taxes go up, people have less money to spend. Other options are incorrect because This answer suggests that higher taxes would encourage businesses to invest more; This option implies that taxes won't change how much people buy.
Key Concepts
Phillips Curve Dynamics
Fiscal Policy Impact
Macroeconomic Equilibrium
Topic
Phillips Curve Dynamics
Difficulty
hard level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.