Most economists believe that whenaggregate output deviates from potential output

Question

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

Point D

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