Refer to the Diagram

question 157

Multiple Choice

Refer to the diagram. Assume that the natural rate of unemployment is 5 percent and that the economy is initially operating at point a, where the expected and actual rates of inflation are each 6
Percent. If the actual rate of inflation unexpectedly falls from 6 percent to 4 percent, then the
Unemployment rate will

• A) temporarily fall from 5 percent to 4 percent.
• B) permanently fall from 5 percent to 4 percent.
• C) temporarily rise from 5 percent to 7 percent.
• D) permanently rise from 5 percent to 7 percent.