Question

H + + + + + 6 INFLATION RATE (Percent) + + + 67 + + + 3.0 3.5 4.0 4.5 5.0 5.5 6.0 UNEMPLOYMENT RATE (Percent) 6.5 7.0

What happened to the inflation rate between the year when the unemployment rate was 5.5% and the year when it was 4.5%?

The inflation rate decreased by 2 percentage points.

The inflation rate decreased from 1.9% to 1.5%.

The inflation rate increased by 0.5 percentage points.

The inflation rate increased from 4% to 5%.

The points on the graph represent observations along the U.S. economy’s Phillips curve during the 1960s. If the inflation rate had been 4% during the 1960s, the unemployment rate would have had to go up by how many percentage points to reduce inflation to 3%?

1.2

0.2

2.8

2.0

Answer 1

Q. Correct: B

As we know that as unemployment in a country decreases then the inflation rate goes up. The reason being a decrease in unemployment means that the economy is growing and economic indicators of growth are improving. This means that people are getting jobs and thus more spending and demand for goods and services in the economy. And the scenario is opposite if increase in unemployment is there. From the graph, we can infer that the increase in the unemployment rate from 4.5 to 5.5 % led to a decrease in the inflation rate from 1.9% to 1.5%.