Which of the Following Best Describes the Negative Slope of the Short-Run

question 7

Multiple Choice

Which of the following best describes the negative slope of the short-run Phillips curve?

• A)Weak growth in aggregate demand keeps the economy below potential GDP,so unemployment rises but inflation falls.
• B)Aggregate demand grows so quickly that the inflation rate rises as unemployment rises.
• C)Long-run aggregate supply increases quickly enough that inflation falls as unemployment also falls.
• D)Short-run aggregate supply increases at the same pace as aggregate demand increases so that inflation and unemployment do not change.

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Definitions:

Long-run Aggregate Supply

The total supply of goods and services that an economy can produce when resources are fully employed at their most efficient levels, without inflation.

Short-run Aggregate Supply

The total supply of goods and services that firms in an economy are willing to produce at a given overall price level in a specific time period.

Aggregate Quantity Demanded

The aggregate quantity of a product or service that buyers are prepared and capable of buying at a specific price point within a certain time frame.

Stagflation

An economic condition characterized by stagnant economic growth, high unemployment, and high inflation.