Use the Figure Below to Answer the Following Questions

question 72

Multiple Choice

Use the figure below to answer the following questions.

Figure 26.3.1
-Refer to Figure 26.3.1. Consider statements (1) and (2) and select the correct answer. (1) The economy of Econoworld is experiencing a below full-employment equilibrium.
(2) The actual unemployment rate equals the natural unemployment rate.

• A)(1)is true; (2)is false.
• B)(2)is true; (1)is false.
• C)(1)and (2)are false.
• D)(1)and (2)are true.
• E)(1)is true; (2)is true if the natural unemployment rate is too high.

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Definitions:

Phillips Curve

An economic theory that suggests an inverse relationship between the rate of inflation and the unemployment rate.

Aggregate Demand

The overall requirement for products and services in an economic setting, identified at a specific price level and time period.

Short-Run Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a short-term period, assuming some input prices are fixed.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time, leading to a decrease in the currency’s purchasing power.