Figure 2 Inflatiorn Rate LR 2 SR3 1 SR2 unemployment rate SRI 21. In figure 2 th

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Figure 2 Inflatiorn Rate LR 2 SR3 1 SR2 unemployment rate SRI 21. In figure 2 the curve with an expected inflation of 2 is: a. LR b. SR1 C. SR2 d. SR3 e. none of the above 22. In figure 2 if SR unemployment rate is below LR unemployment rate, then: a. actual inflation > expected inflation d. there is zero inflation b. actual inflation expected inflation e. none of the above c. actual inflation expected inflation 23. In figure 2, the unemployment associated with the long run curve, LR, is: a. cyclical unemployment b. the natural rate of unemployment c. that unemployment that can be affected by monetary and fiscal policy d. all of the above e. none of the above 24. In figure 2 at point J a. actual inflation > expected inflation d. there is zero inflation b. actual inflation expected inflation e. none of the above c. actual inflation expected inflation 25. In figure 2 at point K the a. unemployment will rise overtime d. all of the above b. actual inflation s expected inflation e. none of the above c. unemployment rate > natural rate of unemployment

Explanation / Answer

21d) SR3

IT is because LR curve and sr3 curve intersect at a point corresponding to which we have given inflation rate

22.a) actual inflation > expected inflation

there is always trade off between inflation and unemployment when unemployment is less inflation is more and vice versa

23 b) Natural rate of unemployment rate

At this rate of unemployment expected inflation is equal to actual inflation.

24b ) actual inflation < expected inflation

At point j the rate of unemployment is very high hence actual rate of inflation is less than expected rate

25 a) unemployment will rise over time

Its because actual rate of inflation is more than expected one hence worker will revise their wages which will certainly lead to higher unemployment .

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Figure 2 Inflatiorn Rate LR 2 SR3 1 SR2 unemployment rate SRI 21. In figure 2 th

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