The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

A) to a lower unemployment rate and a lower inflation rate than policy B.
B) to a lower unemployment rate and a higher inflation rate than policy B.
C) to a higher unemployment rate and lower inflation rate than policy B.
D) to a higher unemployment rate and higher inflation rate than policy B.

Question

Courtney Hardin · Accepted Answer

Final Answer : B, Explanation :  The short-run Phillips curve suggests an inverse relationship between inflation and unemployment. Therefore, a larger rightward shift in aggregate demand (AD), as in policy A, would lead to a lower unemployment rate due to increased economic activity but at the cost of a higher inflation rate compared to policy B.

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