Question

In an underperforming economy, which of the following is true?

1) Inflation accelerates with scant improvement in unemployment.
2) Unemployment accelerates with scant improvement in inflation.
3) Inflation rises slowly with a large decrease in unemployment.
4) Unemployment rises slowly with a large increase in inflation.

Answer 1

During an underperforming economy, unemployment tends to rise with scant improvement in inflation, as businesses cut costs and consumer spending decreases. This results in higher unemployment rates and reduced demand for goods and services, leading to lower inflation.

Step-by-step explanation:

During an underperforming economy, unemployment tends to rise with scant improvement in inflation. This means that as the economy struggles, businesses may cut back on costs, leading to layoffs and higher unemployment rates. At the same time, consumer spending decreases, which reduces demand and puts downward pressure on prices, resulting in lower inflation.

For example, during a recession, when the economy is in a downturn, many businesses may struggle to make a profit and may have to lay off workers to cut costs. This leads to higher unemployment rates. Additionally, consumers may have less disposable income, causing them to spend less, further reducing demand for goods and services and contributing to lower inflation.

Overall, during an underperforming economy, unemployment tends to worsen with little improvement in inflation.