Economics (AS & A Level) · Oct / Nov 2024 · Paper 33 · Question 21

The diagram shows a curve representing the relationship between a country's unemployment rate and its inflation rate. [diagram: axes labelled 'inflation rate' (vertical) and 'unemployment rate' (horizontal), origin O, with a downward-sloping convex curve] Why is it likely that this curve only applies in the short run?

1. AAny attempt to reduce unemployment will increase inflation.
2. BIncreased inflation actually increases unemployment.
3. CIncreased inflation leads to expectations of further inflation.
4. DIncreased inflation reduces real wage rates, which increases the demand for labour.

As printed in the paper