Asked by Ranjani Ramaswamy on Jun 22, 2024
Verified
For a very long time the country of Tofu has had an inflation rate of 8 percent. Suddenly its inflation rate drops to 3 percent. The drop in the inflation rate
A) could be due to slower money supply growth.We would expect unemployment to be higher.
B) could be due to slower money supply growth.We would expect unemployment to be lower.
C) could be due to higher money supply growth.We would expect unemployment to be higher.
D) could be due to higher money supply growth.We would expect unemployment to be lower.
Money Supply Growth
An increase in the total amount of money in circulation or in the economy, often indicated by measures such as M1, M2, and M3.
Inflation Rate
The surge rate of the general price level in goods and services, leading to a decline in the ability to afford purchases.
Unemployment
The situation where individuals who are capable of working and willing to work are unable to find suitable employment.
- Gain insight into the causes of inflation and its consequences on economic performance.
- Describe the connection between unemployment levels and inflation.
Verified Answer
DR
Deseree RileyJun 24, 2024
Final Answer :
A
Explanation :
A decrease in inflation from 8 percent to 3 percent could be due to a slower growth in the money supply. According to the Phillips curve, this could lead to higher unemployment as the economy adjusts to the lower inflation rate.
Learning Objectives
- Gain insight into the causes of inflation and its consequences on economic performance.
- Describe the connection between unemployment levels and inflation.