An economy experiences a decrease in the unemployment rate, an increase in economic growth, and a decrease in the inflation rate. Which of the following is the best explanation for this?

Question

BlackTom AI · Accepted Answer

A rightward shift of aggregate supply (an increase in AS) raises real output and lowers the overall price level, so it directly matches the observed outcomes.

Relevant concepts:
- AD-AS framework: aggregate demand (AD) and aggregate supply (AS) determine real GDP (output) and the price level.
- Short-run aggregate supply (SRAS) shifting right means firms can produce more at every price (due to lower input costs, higher productivity, technology).
- Okun’s law links higher real GDP to lower unemployment; the Phillips-curve intuition links lower inflation to greater supply capacity.

Step-by-step reasoning:
1. Increase in AS (SRAS shifts right): at each price level firms supply more goods and services → equilibrium real GDP rises.
2. Higher real GDP means more production and greater labor demand → unemployment rate falls.
3. With more supply relative to demand, the price level falls or inflation slows (downward pressure on prices) → inflation rate decreases.
4. Therefore the triplet of outcomes — increased growth (higher real GDP), decreased unemployment, and decreased inflation — is exactly what a rightward AS shift produces.

Why the other options are incorrect:
- a (decrease in AD): AD falling reduces real GDP and raises unemployment while lowering inflation — opposite for growth and unemployment.
- b (decrease in AS): AS falling (left shift) reduces real GDP, raises unemployment, and raises the price level (higher inflation) — contradicts the observed decrease in inflation and rise in growth.
- d (increase in AD): AD rising increases real GDP and lowers unemployment but raises the price level (higher inflation), so it cannot explain a decrease in inflation.

Conclusion: An increase in aggregate supply occurred (choice c), which is consistent with higher output, lower unemployment, and lower inflation.

An economy experiences a decrease in the unemployment rate, an increase in economic growth, and a decrease in the inflation rate. Which of the following is the best explanation for this?单项选择题

类似问题

Which of the following factors would be most likely to lead to an increase in aggregate supply (AS) for an economy?