Refer to the diagram for a speciﬁc economy. Which of the following best describes a decision by policymakers that moves this economy from point b to point a?
A) Policymakers have instituted an expansionary monetary policy and/or a budgetary deﬁcit, thereby accepting more unemployment to reduce the rate of inﬂation.
B) Policymakers have instituted a restrictive monetary policy and/or a budgetary surplus, thereby accepting a higher rate of inﬂation to reduce unemployment.
C) Policymakers have instituted an expansionary monetary policy and/or a budgetary deﬁcit, thereby accepting a higher rate of inﬂation to reduce unemployment.
D) Policymakers have instituted a restrictive monetary policy and/or a budgetary surplus, thereby accepting more unemployment to reduce the rate of inﬂation.

Question

Refer to the diagram for a speciﬁc economy. Which of the following best describes a decision by policymakers that moves this economy from point b to point a?
A) Policymakers have instituted an expansionary monetary policy and/or a budgetary deﬁcit, thereby accepting more unemployment to reduce the rate of inﬂation. 
B) Policymakers have instituted a restrictive monetary policy and/or a budgetary surplus, thereby accepting a higher rate of inﬂation to reduce unemployment. 
C) Policymakers have instituted an expansionary monetary policy and/or a budgetary deﬁcit, thereby accepting a higher rate of inﬂation to reduce unemployment. 
D) Policymakers have instituted a restrictive monetary policy and/or a budgetary surplus, thereby accepting more unemployment to reduce the rate of inﬂation.

Quizplus · Accepted Answer

Moving from point b to point a involves increasing output and reducing unemployment, which can be achieved through an expansionary macroeconomic policy such as increasing government spending or reducing taxes. This would lead to higher inflation in the short run, but could ultimately result in a more stable and productive economy in the long run. Choice C best describes this approach.

Refer to the Diagram for a Speciﬁc Economy