7.2. Most economists believe that whenaggregate output deviates from potential o

Question

7.2.   Most economists believe that whenaggregate output deviates from potential output, prices and wageswill eventually adjust and that, in the long run, the economy willreturn to long-run equilibrium.

A similar argument can be made using the Phillips curve model.Again suppose that the economy moves from A to B due toexpansionary fiscal policy. Which point best indicates the long-runtradeoff between inflation and unemployment after the economy hasself-corrected? A.   Point D B.   Point A C.   Point C D.   Point B

Explanation / Answer

C.   Point C

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