Consider an Economy That Is Operating at the Intersection of the Long-Run

question 99

Multiple Choice

Consider an economy that is operating at the intersection of the long-run and short-run Phillips curve. The level of inflation is 2.5 per cent, while the level of unemployment is 3.8 per cent. This implies that:

• A) the economy is operating at a point inside its production possibility frontier.
• B) any increase in interest rates at this point will move the economy up along the short-run
• C) any increase in aggregate demand at this point will move the economy down along the short-run Phillips curve.
• D) the natural rate of unemployment in this economy is 3.8 per cent.

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