The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

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BlackTom AI · Accepted Answer

The short-run Phillips curve (SRPC) captures the inverse relationship between inflation and unemployment when inflation expectations are held roughly constant. A rightward shift of aggregate demand (AD) raises real output and the price level in the short run, producing higher inflation and lower unemployment as the economy moves up along the SRPC. Relevant concepts: - Aggregate demand shift: an AD increase raises output (Y) and price level (P) in the short run. - Short-run Phillips curve: a downward-sloping trade-off between inflation (π) and unemployment (u) when expectations are fixed. - Mechanism: stronger AD → firms increase production → hire more workers → unemployment falls; higher demand pressure → prices/wages rise → inflation increases. Step-by-step reasoning: 1. Policy A shifts AD right by 500 units; policy B shifts AD right by 300 units. Both are expansions, but A is larger. 2. With fixed inflation expectations in the short run, a larger AD increase produces a larger rise in aggregate demand for goods and services. That increases output more under A than under B. 3. Via labor market adjustments (firms hire to meet higher output), unemployment falls more under A than under B. 4. Higher demand pressure on prices and wages raises inflation; because A raises demand more strongly, inflation rises more under A than under B. 5. In SRPC terms, the economy moves from an initial point to a higher-inflation, lower-unemployment point. The magnitude of movement along the SRPC is larger for the larger AD shift. Illustrative algebra (Phillips-curve form): π = π^e − α(u − u_n). Holding π^e constant, a larger increase in π (Δπ_A > Δπ_B) implies a larger decrease in u (Δu_A < Δu_B). Thus u_A < u_B and π_A > π_B. Why other answers would be wrong: - Saying A yields higher unemployment or lower inflation contradicts the inverse SRPC relationship under an expansionary AD shift. - Saying both yield the same outcome ignores the different magnitudes of AD shifts. Conclusion: Policy A will lead to a lower unemployment rate and a higher inflation rate than policy B, which matches the provided answer.

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead单项选择题

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