Figure 16-3

question 12

Multiple Choice

Figure 16-3
Panel (a) Panel (b) Suppose the level of potential output (Y_P) is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a) , the aggregate demand curve in Period 1 is AD₁. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b) point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a) corresponds to point G in Panel (b) and point d in Panel (a) corresponds to point H in Panel (b) .
-Refer to Figure 16-3. Suppose the economy is operating at point a. What happens if
Policymakers undertake expansionary policies in period 1?

• A) Aggregate demand in period 2 shifts to AD₂ and the new combination of inflation and unemployment rates for period 2 is given by point G.
• B) Aggregate demand shifts until point c in panel (a) is reached and the unemployment rate for period 2 is the natural rate.
• C) Aggregate demand in period 2 shifts to AD₂ and the new combination of inflation and unemployment rates for period 2 is given by point H.
• D) Aggregate demand in period 2 shifts to AD₃ and the new combination of inflation and unemployment rates for period 2 is given by point H.

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Definitions:

Quality Of Performance

The degree to which a task or job is carried out with excellence, accuracy, and efficiency.

Intrinsic Motivation

The drive to engage in activities for their own sake and personal rewards, rather than for external rewards.

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The overall capability of the brain to think abstractly, understand complex ideas, solve problems, and learn from experience.

Complex Tasks

Tasks that involve multiple steps, variables, or components, requiring advanced skills or thought processes.