# Question 7 (1 Viewer)

#### Terlob

##### Member
What did everyone get for this one?

I got C

#### midifile

##### Na Na Na Na Naa
What question was it?

My school doesnt let us keep the papers

E

#### zoci

##### New Member
i wrote down C but i just looked at it and it is A. :jaw:

#### RohanZ

##### Pan fried Steak
Was C the one which said Incrased prices and decreased UE? cos I chose that one. It was the only one that even came close to being right. =/

C

#### Terlob

##### Member
What would be the initial impact of an increase in aggregate demand when an economy is at its natural rate of unemployment?

A) An increase in unemployment and an increase in prices
B) An increase in unemployment and a decrease in prices
C) A decrease in unemployment and an increase in prices
D) A decrease in unemployment and a decrease in prices

Last edited:

a

#### runnable

##### Active Member
Sry 7 = a

because

For 7, unemployment will increase because hidden unemployment will decrease due to better economic conditions, hence increasing unemployment in the short run.

#### eskimoh

##### Member
i put a but one or two other ppl i asked put c

#### runnable

##### Active Member
dw eski, its definitely A.

#### tau281290

##### Member
It is definitely C because it says INITIAL impact. Only the Long term impact would be A and this can be explained using the Long Run Phillips Curve which I cbb to explain.

#### runnable

##### Active Member
Sry philips curve is not part of that question whatsoever. It was obviously testing NAIRU and hidden unemployment.

#### tau281290

##### Member
You know Long run phillips curve is not quite just phillips curve.

Its full name is Friedman-phelps Expecations Augmented Phillips curve which explains why what happens when AD is increased at NAIRU. Initial impact would be a decrease in U/E and increase in inflation, over the long term the U/E will return back to the NAIRU.

Go read ur econ text books if you don't get this. A is WRONG.

#### runnable

##### Active Member
Read up on this. If you use this.

Tim Dixon's book (i just realised its him)

Pg 174 middle of page, Read up on rising participation rates

then

pg 171, on NAIRU.

#### BackCountrySnow

##### Active Member
runnable said:
Sry philips curve is not part of that question whatsoever. It was obviously testing NAIRU and hidden unemployment.
the phillips curve shows the trade-off b/w inflation and unemployment. It is relevant.

e) no effect on unemployment and an increase in prices

#### runnable

##### Active Member
Prices increase because the economy has reached its productive capacity (NAIRU). But hidden unemployed comes out to play due to good economic prospects.

#### Tha Wishkah

##### Member
inspectoroftide said:
this

#### midifile

##### Na Na Na Na Naa
OMFG!!!

Its one fucking mark

Get over yourselves everyone

I put C and it may or may not be right but I dont fucking care because there is nothing I can do

#### BackCountrySnow

##### Active Member
Omfg Reli? Just 1 Mrk???