AP Macroeconomics Question 231: Answer and Explanation

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Question: 231


Consider the diagram above. In the short run, stagflation will move the economy from point B to

  • A. point A.
  • B. point A and then back to point B.
  • C. point C.
  • D. point D.
  • E. point E.

Correct Answer: D


(D) Stagflation is inflation and recession (unemployment) at the same time. The only point shown with higher inflation and unemployment than B is point D. Indeed, stagflation causes the Phillips curve to shift right through a point such as D.