the current state of the economy of johnsrudia is represented by point z shown here. which of the following…
the current state of the economy of johnsrudia is represented by point z shown here. which of the following statements is correct based on this graph? choose 1 answer: a lenders are unexpectedly better off. b unemployment is higher than the natural rate. c there is a recession. d inflation is higher than expected. e the srpc will shift to the left in the long run.
Answer
Brief Explanations:
The long - run Phillips curve (LRPC) represents the natural rate of unemployment. Point Z shows an unemployment rate of 3% which is lower than the natural rate (assumed to be 8% from the LRPC position). High inflation (7%) is present at this low unemployment rate. Lenders are worse off with high inflation as the real value of money they receive back is lower. There is no indication of a recession as unemployment is low. The SRPC does not necessarily shift left in the long - run just based on this point. High inflation at a low unemployment rate implies inflation is higher than expected in a situation where the economy is operating above the natural rate of unemployment.
Answer:
D. Inflation is higher than expected.