Figure 16-3

Multiple Choice

Figure 16-3
Panel (a) Panel (b) Suppose the level of potential output (Y_P) is $1,000 billion and the natural rate of unemployment is 5%. In Panel (a) , the aggregate demand curve in Period 1 is AD₁. Assume that the price level in Period 1 has risen by 1.5% from the previous period and the unemployment rate is 10%. Thus, in Panel (b) point F shows an initial rate of inflation of 1.5% and an unemployment rate of 10%. Similarly, point b in Panel (a) corresponds to point G in Panel (b) and point d in Panel (a) corresponds to point H in Panel (b) .
-Refer to Figure 16-3. The Phillips phase of the inflation-unemployment cycle is explained

A) by a stagnant short-run aggregate supply curve.
B) by leftward shifts of the aggregate demand curve in each successive period.
C) by upward shifts along the LRAS curve in each successive period.
D) by rightward shifts of the aggregate demand curve in each successive period.