A movement along the SAS curve that brings a lower price level and a decrease in real GDP is equivalent to a
A) movement along a short-run Phillips curve that brings an increase in the inflation rate and an increase in the unemployment rate.
B) shift in the short-run Phillips curve that brings a decrease in the inflation rate and an increase in the unemployment rate.
C) movement along a short-run Phillips curve that brings a decrease in the inflation rate and an increase in the unemployment rate.
D) shift in the short-run Phillips curve that brings an increase in the inflation rate and an increase in the unemployment rate.

Question

Quizplus · Accepted Answer

A movement along the SAS curve, where there is a decrease in the price level and a decrease in real GDP, indicates a decrease in aggregate demand. This decrease in aggregate demand leads to lower economic activity, which leads to firms lowering their prices. As a result, we see a movement along the SAS curve. This movement along the SAS curve would result in a decrease in the inflation rate and an increase in the unemployment rate, which is represented by a movement along a short-run Phillips curve. Therefore, the correct answer is choice C, which represents a movement along a short-run Phillips curve that brings a decrease in the inflation rate and an increase in the unemployment rate.

A Movement Along the SAS Curve That Brings a Lower