-Refer to the Above Diagram

question 112

Multiple Choice

-Refer to the above diagram.Assume that the natural rate of unemployment is 7.5 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 7.5 percent to 4 percent.
• B) permanently fall from 7.5 percent to 4 percent.
• C) temporarily rise from 7.5 percent to 9.5 percent.
• D) permanently rise from 7.5 percent to 9.5 percent.