-Refer to the Above Figure

question 121

Multiple Choice

-Refer to the above figure. Suppose the natural rate of unemployment is 5 percent. If the government tried to reduce unemployment to 4 percent and keep it there, it must

• A) raise unemployment benefits.
• B) accept a permanent inflation rate of 1 percent.
• C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent.
• D) use contractionary fiscal and expansionary monetary policy.

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Definitions:

Price Change

A variation in the cost of a good or service over time in a market.

Nominal Income

Income figures that have not been adjusted for inflation, representing the amount of money earned in current dollars.

Quantity Demanded

The combined measure of a good or service that purchasers are eager and able to acquire at a predetermined price.

Buyer's Preferences

The individual tastes or desires that influence a consumer's purchasing decisions and the allocation of their budget across various goods and services.