Question

If a Philips curve shows that unemployment is high and inflation is low in the economy, then that economy:?

1) is producing at its potential GDP
2) is producing at a point where output is more than potential GDP
3) is producing at a point where output is less than potential GDP
4) is producing at its equilibrium point

Answer 1

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy is producing at a point where output is less than potential GDP.

Step-by-step explanation:

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy is producing at a point where output is less than potential GDP.

In the short run, when there is high unemployment and low inflation, it indicates that the economy is operating below its potential. This implies that there is a gap between actual output and potential output, as the economy is not utilizing all its available resources.

Therefore, the correct option is 3) is producing at a point where output is less than potential GDP.