-In the above figure, suppose that the economy is at point A. An unexpected increase in the inflation rate to 6 percent will result in a movement to point
A) A, that is, there is no movement.
B) B.
C) C.
D) D.

Question

-In the above figure, suppose that the economy is at point A. An unexpected increase in the inflation rate to 6 percent will result in a movement to point
A) A, that is, there is no movement. 
B) B. 
C) C. 
D) D.

Quizplus · Accepted Answer

An unexpected increase in the inflation rate to 6 percent would typically lead to higher nominal interest rates as lenders demand more compensation for the decreased purchasing power of future payments. This scenario is represented by a movement up along the short-run Phillips curve to a point like B, where both inflation and unemployment rates are higher.

-In the Above Figure, Suppose That the Economy Is at Point