ECONOMICS
ECONOMIC GROWTH
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The government’s budget deficit will fall.
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Any existing inflationary pressure will be reduced.
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Potential output will fall.
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The economy’s production possibility curve will shift inwards
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Detailed explanation-1: -In the short-run, inflation and unemployment are inversely related; as one quantity increases, the other decreases.
Detailed explanation-2: -As inflation accelerates, workers may supply labor in the short term because of higher wages – leading to a decline in the unemployment rate.
Detailed explanation-3: -Consider a recession, a period of low economic activity. With lower demand for goods and services, firms start laying off workers and at the same time refrain from raising prices. So unemployment rises and inflation falls during recessions.
Detailed explanation-4: -The cost of reducing inflation is a period of unemployment and lost output. The sacrifice ratio is the number of percentage points of annual output that is lost to reduce inflation one percentage point.