Figure 16-3

question 102

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. The Phillips phase of the inflation-unemployment cycle is explained

• A) by a stagnant short-run aggregate supply curve.
• B) by leftward shifts of the aggregate demand curve in each successive period.
• C) by upward shifts along the LRAS curve in each successive period.
• D) by rightward shifts of the aggregate demand curve in each successive period.

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